Finance Secretary Carlos Dominguez III said Monday he is optimistic the Philippines will attain a credit rating of “A””•a debt score normally reserved for highly stable advanced economies”•within the next two years.
Dominguez, speaking at the sidelines of the Finance Department’s 122nd anniversary in Manila, said this would depend on the completion of the tax reform program and the government’s ability to keep the budget deficit below 3 percent of the gross domestic product.
“We want to do it in two years… They say it is possible in two years,” Dominguez said.
Global debt watcher S&P Global Ratings on April 30 raised by a notch its long-term sovereign credit rating on the Philippines to “BBB+” from “BBB” with a stable outlook, citing the country’s above-average economic growth, a healthy external position, and sustainable public finances.
The upgrade put the Philippines at par with Mexico, Peru, Thailand and Trinidad, and Tobago. It is higher than the “BBB” ratings of Italy, Portugal, Hungary, Panama, and Uruguay.
The upgrade is a notch away from “A-“ which is within the much-coveted “A” rating category.
“One has given the increase in rating… I am going to be talking to the Fitch guys next month,” Dominguez said.
S&P said that in upgrading the Philippines’ credit score, the stable outlook reflected its assumption that the Philippine economy would continue to achieve above-average real GDP growth over the medium term, supporting the sovereign’s credit profile.
“We may raise the ratings over the next two years if the government makes significant further achievements in its fiscal reform program, or if the country’s external position improves such that its status as a net external creditor becomes more secure over the long term,” it said.
“We may also raise the ratings if we find that the institutional settings in the Philippines have improved markedly,” it said.
Fitch said, however, that it might lower the ratings if the government’s fiscal program led to much higher-than-expected net general government debt levels, or if real GDP growth declined significantly.
S&P said the government so far achieved partial success with its “Comprehensive Tax Reform Program.” The program aims to ensure that finances remain sustainable while addressing the nation’s pressing infrastructure needs and chronic underinvestment.
The tax reform program is partially intended to fund the administration’s “Build, Build, Build” scheme to boost infrastructure spending.
S&P said the delay in the national budget approval would likely entail a lower-than-programmed fiscal deficit for the entire year as government agencies struggle to implement the entire 2019 budget.
“Although we view this budget delay as a likely one-off, more such delays in future could be considered as credit negative, especially if related to the institutional settings in the Philippines,” it said.
The Philippine economy grew by 6.2 percent in 2018, missing the official target range of 6.5 percent to 7.5 percent on faster inflation rate and sluggish contribution of the agriculture sector.
The economy is seen to grow 6 percent to 7 percent this year, on the back of faster fiscal spending, robust domestic demand and investments.
The Philippines also enjoys investment grade ratings from Fitch Ratings and Moody’s Investor Service, although a notch lower than the score given by S&P.
Dominguez said the credit rating upgrade recognized President Rodrigo Duterte’s solid commitment to the bold reforms and sound economic policies outlined in his 10-point socioeconomic agenda and acknowledged his strong political will to get these done at the soonest possible time.
“It is also a tribute to the hard work put in over the years by our predecessors and the men and women who continue to work for this Department,” said Dominguez.