RAM Ratings, a Malaysia-based credit watchdog, upgraded the Philippines’ Asean credit rating by one notch to “A1,” or five notches higher than the minimum investment grade, amid the country’s resilience against global economic shocks.
RAM said in a report released over the weekend it also affirmed the Philippines’ global credit rating at “BBB3,” or the minimum investment grade. Both ratings have a stable outlook.
RAM explained the term “Asean credit rating” took into account a sovereign’s credit-rating performance vis-à-vis its peers in the Southeast Asian region, while the term “global credit rating” considered the country’s performance in comparison with other countries in the world.
“The upgrade of the Philippines’ ratings, both on the Asean and Malaysia national rating scales, reflects impressive progress in the enactment of key legislative and administrative reforms as well as the country’s resilience, especially its ability to withstand external volatilities that compares favorably by Asean peers,” RAM said.
It said despite a slower pace of growth in workers’ cash remittances, domestic private consumption expanded further. The Philippines also weathered a bout of financial volatility in 2015 relatively well, it said.
“A robust growth momentum driven by the acceleration of public infrastructure spending and the country’s persistently strong external position anchors its global-scale rating at BBB3/stable [outlook] while structural issues such as elevated underemployment and poverty rates remain long-term constraints,” RAM said.
RAM said given the robust domestic demand and acceleration of public spending in the second half, the Philippine economy was expected to grow 6.5 percent in 2016, the midpoint of the Duterte administration’s target range of 6 percent to 7 percent.
GDP grew 6.8 percent in the first quarter, before accelerating 7 percent in the second quarter driven by robust election-related spending, strong domestic demand and investment. This brought the first-half average to 6.9 percent, near the upper bound of the target range.
RAM said in giving a stable outlook for the Philippine ratings on global, Asean and Malaysian national scales, this was premised on expectations that the new Duterte government would maintain current macroeconomic policies and continue to make progress in reforms achieved in the last few years.
RAM, however, said structural issues remained long-term constraints for growth. It cited the Philippines’ lowest rank in terms of human development index compared to its BBB-rated peers. It said notwithstanding lower unemployment rates, underemployment and poverty rates remained elevated at 18.6 percent and 21.1 percent, respectively, in 2015.
It also said that while the country’s competitiveness and ease of doing business rankings were marginally better, they still remained relatively weak as infrastructure and electricity supply shortfalls continued to be long-term constraints.
RAM said the Philippines’ global-scale ratings could be upgraded if current improvements were sustained and the growth momentum continued with an increased share of domestic investments and foreign direct investments.
However, it warned that the ratings could be revised downward if government finances weakened substantially and surging capital flows due to divergent monetary policies in advanced economies threatened domestic financial stability.
It said the reversal of investment initiatives and growth-enhancing strategies, though unlikely, would be viewed negatively.
The Philippines also enjoys investment-grade ratings from major global credit rating agencies S&P Global Ratings, Moody’s Investors Service and Fitch Ratings.