Major rating agencies on Wednesday assigned investment-grade scores to the benchmark-sized dollar-denominated bond offerings by the government, including tranches maturing in 2027, 2033 and 2047.
S&P Global Ratings gave “BBB+” long-term foreign-currency issue rating to the bond issuance, while Moody’s Investors Service assigned senior unsecured ratings of “Baa2.”
“The bonds represent direct, general, unconditional, unsecured and unsubordinated obligations of the Philippines and rank equally with the sovereign’s other unsecured and unsubordinated debt obligations,” S&P Global Ratings said in a statement.
The proceeds from the bonds are intended for general purposes including budgetary support, with those from the 25-year offering supporting the issuer’s efforts towards sustainable development and addressing climate change under its Sustainable Finance Framework.
Moody’s said the rating mirrors the Philippines’ issuer rating of Baa2.
“The Philippines’ Baa2 issuer rating takes into consideration high potential growth and a moderate government burden as compared to peers, as well as a sufficiently strong external position to meet forthcoming cross-border payment obligations and weather capital flow volatility,” Moody’s said.
“Structural credit challenges include low per capita income and some constraints to the quality of institutions, which stand in contrast to strong policy effectiveness. The Philippines also has a heightened susceptibility to environmental risks given the high incidence of climate-related shocks,” it said.
Moody’s said even as the country emerged from the pandemic with a degree of economic scarring, the recovery in real GDP growth would persist amid the deterioration in global credit conditions in the near-term and converge towards potential rates of around 6 percent per annum beyond this year.
“Unless the Philippines faces sustained and irreversible damage to domestic labor markets, a significant and prolonged drop in remittances or an acceleration in the fragmentation of regional supply chains, growth potential will continue to be boosted by favorable demographics and ongoing improvements in the investment climate,” it said.
The Philippines’ per capita income, which is lower relative to peers at roughly $9,175 in 2021 at purchasing power parity compared with around $27,150 for the median Baa- rated sovereign, is an important constraint on both economic strength and the rating, it said.
“The fortification of the government’s fiscal position prior to the pandemic provided a buffer against a rise in public indebtedness in recent years,” Moody’s said.
National government debt rose to 60.4 percent of GDP in 2021 from 39.6 percent in 2019, effectively reversing the progress on debt consolidation over the past decade.
Moody’s said the large foreign exchange reserves of $97.4 billion as of end-August contributed to macroeconomic stability against the backdrop of current account deficits since 2016, notwithstanding a temporary return to a surplus in 2020.