The Philippines restored a plan to attain a credit rating of “A” despite the challenging environment, and Finance Secretary Benjamin Diokno is confident it could be achieved within the term of President Ferdinand Marcos Jr.
Diokno, the head of the economic team, said the country’s resilience showed at the height of the COVID-19 pandemic enabled the economy to return to the path of an “A” rating.
He said an upgrade to “A” rating would result in improved perception of the local and international business and financial communities to the country, and help reduce the government’s borrowing cost.
This will also increase investments and eventually help achieve the country’s long-term economic plans, including becoming a high-income nation in two decades.
Countries with top ratings can access funding from development partners and international capital markets at lower costs due to lower credit risk factor.
“We are firmly back on the road to ‘A’, and we hope to achieve this objective by the end of this administration in 2028,” Diokno said.
The “Road to A” is the government’s program to achieve an investor-grade sovereign credit rating of ‘A’ from international rating agencies. These include Moody’s Investor Service, Fitch Ratings and S&P Global Ratings as well as Japanese raters Rating and Investment Information Inc. and the Japan Credit Rating Agency.
An A rating would affirm the Philippines’ creditworthiness and serve as a strong signal to local and international business and financial communities that the country is conducive to long-term investments.
The Philippines now has a “BBB+” sovereign credit rating from S&P Global, which is one notch below the minimum A rating target of the government.
Fitch in May 2023 affirmed its “BBB” rating and simultaneously revised its outlook from negative to stable in view of their improved confidence in the country’s strong medium-term growth after the pandemic and sustained reductions in the debt-to-GDP ratio. Fitch said the country’s economic policy framework remains sound.
Diokno said it is very important that the country managed to maintain investor grade ratings even during the pandemic, while other countries were downgraded. The Philippines’ credit scores also remained strong compared to select rating peers.
Roadblock to ‘A’
Diokno admitted that given the current global environment, getting an “A” rating would be challenging. Proof of this is that recently, Fitch Ratings downgraded the US debt rating from “AAA” to “AA+” as a result of the expected fiscal deterioration over the next three years and due to the high and growing general government debt burden.
The BSP and the Department of Finance organized in 2019 an Inter-agency Committee on the Road to A Credit Rating Agenda which aims to effectively coordinate the efforts of member agencies to develop, execute and monitor the implementation of A roadmap.
The IAC aims to enhance engagements with analysts and investors; coordinate engagements with credit rating agencies and third-party raters; and increase the Philippines’ visibility through traditional and technology-based platforms.
Stable outlook
R&I, a Japanese credit rate, earlier affirmed the Philippines’ investor-grade credit rating at “BBB+” and revised its outlook to positive from stable, taking into account the country’s robust macroeconomic fundamentals, improving fiscal position, sound banking system, comfortable external payments position and stable political environment. A BBB+ rating is two ranks higher than the minimum investment grade and just one notch below the ‘A-’ rating.
A positive outlook indicates the possibility of a rating upgrade once performance indicators such as the economic growth sought under the Philippine Development Plan 2023-2028, stable macroeconomic conditions and improving trend of fiscal position have been confirmed.
Diokno said the government is steadfast in its commitment to fiscal consolidation through the country’s first Medium-Term Fiscal Framework which will help bring down the debt-to-GDP ratio to less than 60 percent by 2025, cut the deficit-to-GDP ratio to 3.0 percent by 2028 and maintain infrastructure spending at 5 percent to 6 percent of GDP.
This will be implemented alongside the strategies outlined in the PDP 2023-2028 to reinvigorate job creation and accelerate poverty reduction by steering the economy back on a high-growth path.
According to the report, the Philippine economy performed well amid the volatile global landscape, citing its decelerating inflation rate and strong private consumption and investments.
R&I also noted that the country’s gross domestic product grew 7.6 percent in 2022, the fastest in 46 years.