Japanese debt watcher Rating and Investment Information Inc. kept the Philippines’ investment-grade credit rating of “BBB+” with a stable outlook in a vote of confidence to the economy’s COVID-19 recovery and growth prospects over the medium term.
R&I, in a statement released Thursday evening, recognized the role of fiscal and monetary actions in providing a favorable outlook for the Philippines in the post-COVID period.
“The Philippines’ economy suffered a severe contraction due to the COVID-19 pandemic in 2020 but is expected to recover primarily through aggressive public investment, which had driven the economy in the past several years. Fiscal and monetary policies will boost growth for some time,” R&I said.
BBB+ is a notch away from the minimum rating within the A-territory ratings, while a “stable” outlook indicates absence of factors that may cause the rating to change over the short term.
Finance Secretary Carlos Dominguez III said that in keeping its “BBB+” credit rating with a “stable” outlook for the Philippines, R&I took notice that although the global fight against the pandemic proved to be a costly one, the country’s strong macroeconomic fundamentals ahead of the pandemic enabled the government to accelerate spending on urgent and necessary programs to save lives and keep the economy afloat.
“With a manageable debt profile, a steady revenue stream brought about by tax reform, and the continued practice of fiscal prudence, the government is confident it will not run out of resources in waging the protracted battle against the COVID-19 crisis,” Dominguez said.
He said that as R&I itself acknowledged, the government is committed to pursue the remaining reforms in its socioeconomic agenda even if it remained preoccupied with the challenges of the pandemic—and this resolve would let the Philippines return soon enough to the pre-pandemic path of high and inclusive growth.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno also welcomed the rating decision by R&I, saying: “The Philippines once again earned an important vote of confidence on its ability to bounce back from the COVID-19 crisis, with R&I’s affirmation of the country’s BBB+ rating with a ‘stable’ outlook.”
“With the recent surge in COVID-19 cases, the tail-end of the crisis is proving to be extra challenging. Nevertheless, we do not see a permanent dent on our macroeconomic fundamentals, and we can head back to our growth path post-COVID,” he said.
Inflation, although seen to slightly breach the target range this year, will ease to within the 2 percent to 4 percent target band next year.
Diokno said the banking sector, although not totally unscathed, kept the impact of the crisis manageable and remained well capable of helping support economic recovery and growth through credit.
“The favorable inflation outlook and stable banking system, plus the speed of financial digitalization happening in the economy, are good reasons to be confident about the Philippines’ medium and long-term growth prospects,” Diokno said.
R&I positively viewed the increase in government spending and budget deficit in light of the COVID-19 pandemic, noting that the country’s fiscal situation remained manageable.
Compared with the pre-pandemic fiscal program of a 3-percent budget deficit-to-GDP ratio, the budget gap of the national government widened to 7.6 percent of GDP last year amid the government’s funding of COVID-response measures. Moreover, the government’s debt is estimated to rise to 57 percent of GDP this year, up from 39 percent in 2019.
“R&I does not view this as a major issue at this juncture, because of a comfortable funding condition backed by ample domestic liquidity and the prospect of peaking-out of the debt ratio within one to two years,” R&I said.