PHL receives another ratings upgrade from S&P

MANILA, May 8 (PNA) — Projecting that current government reforms in the Philippines will be pursued beyond the Aquino administration, Standard & Poor’s (S&P) on Thursday upped by another notch the Philippines’ investment grade rating to ‘BBB’ with stable outlook from ‘BBB-‘, a year after giving it an investment grade rating.

In a statement, the ratings agency said it also upgraded the country’s short-term rating to ‘A-2’ from ‘A-3’, the ASEAN regional scale rating to ‘axA/axA-2’ from ‘axA-/axA-2’ and the transfer and convertibility assessment to ‘BBB+’ from ‘BBB-‘.

It explained that the ratings were upgraded “because we now believe the ongoing reforms to address shortcomings in structural, administrative, institutional, and governance areas will endure beyond the current administration.”

”In turn, we believe the resulting gains in government revenue generation, spending efficiency, and the improvements in public debt profile and investment environment will at least be preserved in the medium term under the next administration,” it said.

The debt watcher explained that in its assessments “even though a change of administration after the presidential elections in 2016 represents some uncertainty for reforms, the risks have shifted toward maintaining the impetus and direction of the process, away from a potential reversal or abandonment of advances achieved to date.”

It also said that the latest upgrade indicates “the country’s strong external liquidity and international investment position, combined with an effective monetary policy framework relative to the country’s income level.”

It said cited the “sustained low inflation and interest rate” of the country.”

Inflation last April ticked-up to 4.1 percent from month-ago’s 3.9 percent but the four-month average of 4.1 percent remains within the three to five percent target of the government.

Foreign reserves last March stood at USD 79.8 billion, lower than month-ago’s USD 80.5 billion but remains strong since it is sufficient to cover 11.1 months’ worth of import of goods and payments of services and income and is equivalent to 7.1 times the country’s short-term foreign liabilities based on original maturity and 5.2 times based on residual maturity.

“These rating supports are weighed against a relatively low income level and fiscal constraints owing to a narrow revenue base and a shortage of basic infrastructure and government services,” S&P explained.

Another support factor is the country’s strong external profile, the debt watcher said citing the “substantial foreign exchange buffer” of the country.

Because of the sustained growth of the country’s balance of payment (BOP) position, boosted partly by remittances and income from the business process outsourcing (BPO) sector, the debt watcher forecasts that the country’s current account surplus will continue to be in surplus “even if all the errors and omissions of the balance of payments (about 1.5% of GDP) are attributed to under-reported imports.”

S&P said improvement in monetary policy environment is also a plus for the Philippines.

On the other hand, the credit rating agency said the low income level in the country remains a constraint along with associated vulnerabilities in the medium term.

“However, taking into account remittances, the Philippines’ gross national product is about a third higher than its GDP. On that measure, the country’s payment capacity would be greater, particularly when the remittances are as durable as they have been,” it added.

For his part, Finance Secretary Cesar Purisima said the upgrade is a “further proof of President (Benigno) Aquino;s (III) belief that good governance is good economics.”

”We will continue to institutionalize good governance so our country’s economic growth is both sustainable and inclusive.”

”We expect ongoing reforms on a broad range of structural, administrative, institutional, and governance issues to endure byond the term of the current administration,” he added.

Also, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said Thursday’s upgrade “is a major feat as S&P did a straight upgrade.”

”They no longer assigned a positive outlook before upgrading the rating,” he noted.

Tetangco said the decision “is further affirmation of the country’s strong macroeconomic fundamentals” and “a recognition that the structural reforms that we have put in place continue to gain traction, as demonstrated by the significant improvements in the country’s position in international governance and competitiveness surveys.”

He stressed that the central bank “will continue to support sustained and inclusive economic growth amid a low-inflation environment.”

”We stand ready to adjust our monetary policy stance and adopt macroprudential measures, as appropriate, to guard against risks that would unsettle inflation expectations and threaten the soundness of our financial system. We will also continue to craft external sector policies that will help keep our external liquidity position strong,” he added.

Aside from S&P, Philippines also holds investment grade ratings from Moody’s Investors’ Service and Fitch Ratings. These three major debt watcher all gave the country its investment grade ratings in 2013. (Philippine News Agency)