Last week, Standard and Poor’s Rating Services (S&P) raised its credit rating on the Philippines to just a notch below “investment” grade.
The rating agency upgraded the country’s long-term sovereign credit rating from BB to BB + with a stable outlook, on the basis of improved fiscal flexibility and strong external position – the country’s highest level since 2003.
Credit rating is a key condition in investors’ decisions on whether to buy government debt or invest in a particular country. Many foreign fund managers are restricted from holding debt below investment grade.
Already, the upgrade has pulled the Philippine peso to P 41.72 against the US dollar, making the local currency the best performing in emerging Asia.
It has also bolstered further the equity market that has hit new peaks this year.
In the first half of the year, the Philippine Stock Exchange (PSE) index recorded new all-time highs 19 times, rising a total of 20 per cent to finish at 5,246.41 by the end of June. Last July 4, the index breached 5,400 in intra-day trade.
These achievements prompted economic analysts to say that investor confidence in Philippines, Inc. is at an all time high and that the country is among the hottest emerging markets today.
The S&P upgrade has fueled confidence in the Aquino administration that the Philippines will soon make it to investment grade that will further reduce the country’s borrowing costs, free more funds for government spending, and attract more foreign and local investments to the country.
“We can now clearly make our case for an investment grade status,” finance secretary Cesar Purisima said. The central bank, Bangko Sentral ng Pilipinas, believes an investment grade rating is possible this year.
While saying he was “bullish” on outlook , President Benigno Aquino, Jr. told local media he did not want to put a date on when investment status could be attained. “We have a saying that we shouldn’t say what we expect lest we jinx the whole thing, but we definitely would work hard to get there,” he said.
Meanwhile, Moody’s Investors Service has boosted its outlook on the Philippines to positive in May, citing improving debt levels. Fitch Ratings raised the country’s debt to one step below investment grade in June 2011.
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