PH credit rating upgraded; stable outlook cited

S&P Global Ratings on Tuesday raised the Philippines’ sovereign credit rating a notch to BBB+ from BBB, citing the country’s stable outlook, above-average economic growth, healthy external position, and sustainable public finances.

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The upgrade put the Philippines at par with Mexico, Peru, Thailand, and Trinidad and Tobago, and higher by a notch than Italy, Portugal, Hungary, Panama, and Uruguay.

In a statement, S&P said the stable outlook reflects its assumption that the Philippine economy would continue to achieve above-average real gross domestic product (GDP) growth over the medium term, supporting the sovereign 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.

On the other hand, it said it may lower the ratings if the government’s fiscal program leads to much higher-than-expected net general government debt levels, or if real GDP growth declines significantly.

S&P said the rating upgrade reflected the Philippines’ strong economic growth trajectory, which is expected to continue to drive constructive development outcomes and underpin broader credit metrics over the medium term.

“The rating is also supported by solid government fiscal accounts, low public indebtedness, and the economy’s sound external settings,” it said.

S&P said the Philippine economy is among the fastest growing in the world on a 10-year weighted average, per capita basis—a reflection of its supportive policy dynamics and improving investment climate.

“The country has a relatively diversified economy with an increasingly strong track record of high and stable growth. We estimate GDP per capita will rise to almost US$3,400 in 2019 (we include nonresident nationals in our population data),” it said.

S&P projects GDP per capita growth will average about 4.9 percent per year over 2019-2022, based on balanced contributions from private consumption and investment growth.

Also, the country’s unemployment rate has been declining for a few years, signaling the economy’s strengthening labor market even as the working-age population continues to grow, it said.

It said the economy’s constructive trajectory should be underpinned by strong household and company balance sheets, continued income growth, sizable inward remittance flows, and an adequately performing financial system.

S&P further said the government has 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, through which the government plans to significantly boost infrastructure spending.

In the first package of the Tax Reform for Acceleration and Inclusion, measure (1-a) was implemented in 2018, supporting the expansion of national government revenue to 16.4 percent of GDP, from 15.6 percent in 2017.

Meanwhile, 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 [the] future could be considered as credit negative, especially if related to the institutional settings in the Philippines,” it said.

Last year, the economy grew by 6.2 percent, missing the official target range of 6.5 to 7.5 percent, pulled down by a higher inflation rate and the sluggish contribution of the agriculture sector.

This year, the economy is seen to grow between 6 percent and 7 percent, 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.

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Topics: S&P Global Ratings , credit rating , gross domestic product
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