Following the recent raising of the country’s credit rating from stable to positive by Standard and Poor’s (S&P), the government has expressed confidence its goal of getting an “investment” grade will be reached by next year.
If achieved, it will be the first time investment rating ever for the Philippines.
In a statement released last December 19, S&P credit analyst Agost Bernard explains why the outlook for the Philippines was revised upwards: “In our view, the current administration possesses a level of legitimacy, support and stability that reduces political uncertainty and allows for improved legislative efficiency.”
Also cited were the government’s ability to focus on fiscal consolidation, infrastructure and poverty reduction, as well as to pursue its reform agenda.
Bernard also mentioned the country’s strengths, including a robust external profile and consistent track record of moderately strong growth.
The country posted a surprising 7.1 per cent GDP growth for the third quarter of the year, and before that, a 6.5. per cent growth for the second quarter on a year-on-year basis.
Having an investment grade credit rating means the Philippines would be able to haggle for lower interest rates when it borrows abroad since its debt instruments are deemed less risky than that of other countries.
Philippine officials also said an investment grade would boost investor interest in the country.
From 2005 to 2010, the Philippine performance had been lackluster. Its credit rating had been struck at three notches below investment grade (BB-) until November 2010 when it improved one notch (BB) which was followed by another upgrade last July (BB+).
Bernard confirmed that the country’s rating may be raised next year provided government revenue structure is improved and reliance on foreign currency government debt financing continues to diminish.
An upgrade can also be awarded if the Aquino administration’s reforms lead to an improved investment environment and growth capacity.
However, the outlook could be reverted back to “stable” if the Philippines fails to manage its fiscal deficit or its external liquidity position deteriorates, Bernard warned.
Other weaknesses cited which the government should strive to improve is GDP-to-debt ratios and income levels of the population.