Malaysia-based RAM Ratings said Monday it upgraded its outlook on the Philippines’ credit ratings to “positive” from “stable” because of the Duterte administration’s bold infrastructure agenda and tax reform efforts alongside robust economic growth and strong external payments positions.
“The positive outlook… reflects stronger-than-expected GDP performance in 2016 and growing FDI [foreign direct investments] despite a change in administration,” it said in a statement released by the Investor Relations Office of the Bangko Sentral ng Pilipinas.
The Philippine economy grew 6.9 percent in 2016, near the upper range of the Duterte administration’s target of 6 percent to 7 percent for that year and was among the fastest in Asia.
Growth momentum continued this year, averaging 6.4 percent in the first half and settling at 6.5 percent in the second quarter. Growth in the second quarter marked the economy’s 74th consecutive quarter of uninterrupted growth since 1999.
“Continuous efforts to reduce red tape, simplify regulations and streamline business processes bode well for investors, having led to improved competitiveness and ease of doing business rankings,” RAM said.
It also recognized “vast accumulation of official reserve assets,” which lends support to the country’s external payments position, the government’s efforts to “broaden its revenue-generating capacity
[while making] the tax regime more progressive,” and “the pace of infrastructure spending [that] is anticipated to be faster than [in] the previous administration.”
A “positive” outlook means that the Philippines’ existing global scale rating of BBB3 and regional scale rating of A1 from RAM have chances of getting upgraded over the short term.
BBB3 is the minimum investment grade, while A1 is four notches away from the highest rating of Triple A.
Global rating reflects a country’s perceived creditworthiness compared with countries from around the globe, while regional rating shows comparison vis-a-vis Southeast Asian neighbors.
Finance Secretary Carlos Dominguez III said the positive outlook from RAM Ratings was another confidence vote in the Duterte administration’s resolve to grow the Philippine economy and achieve financial inclusion through the ‘Build, Build, Build’ program while maintaining fiscal discipline and ensuring this infra buildup’s sustainability via a comprehensive tax reform program.
“Through sustained massive public investments in infrastructure and social services over the medium term, the government aims to accelerate poverty reduction, attract more investments, create enough
jobs and transform the country into an upper middle-income economy by the end of President Duterte’s term in 2022,” Dominguez said.
Under the “Build Build Build” program, dubbed as the country’s boldest infrastructure agenda thus far, the administration targets to spend between P8 trillion and P9 trillion on roads, railways, airports, seaports and other big-ticket infrastructure projects until the end of its term in 2022.
Government infrastructure spending is targeted to rise continually from 4.5 percent of GDP in 2016 to 7.3 percent of GDP by 2022.
Bangko Sentral Governor Nestor Espenilla Jr. said the country’s strong external payments position, as recognized by RAM, would remain robust over the medium term.
“The country’s external payments position, which lends strong support to the country’s investment grade credit ratings, is expected to remain strong in the years ahead on account of significantly rising
FDIs, underpinned by sustained inflows in remittances and growing tourism receipts,” Espenilla said.
“The country’s enabling environment, highlighted by the full liberalization of the banking sector, is encouraging more foreign banks to operate in the Philippines and, therefore, help bring in more
job-generating investments,” Espenilla said.
RAM said sustained momentum of robust economic growth, rising FDIs, as well as successful implementation of tax reform and rollout of key infrastructure projects may lead to actual upgrade of the global and regional ratings of the Philippines.
The Philippines also currently enjoys investment grade ratings from the three major credit rating agencies including Fitch Ratings, Standard & Poor’s and S&P Global Ratings.