Finance Secretary Carlos Dominguez III said more tax and economic reforms will help the Philippines secure the “A” credit rating in the next couple of years.
Dominguez said in a statement Thursday the approval of the remaining packages of the comprehensive tax reform program and other economic reforms, such as the amendments to the Public Services Act, Retail Trade Act and the Foreign Investments Act would enable the country to obtain the coveted “A” credit rating in two years.
Dominguez said the government would step up the implementation of reforms in 2020 and keep a low debt-to-GDP (gross domestic product) ratio as part of its “Road to A” initiative aimed at securing the “A” rating, which is accorded only to the world’s most stable economies.
He said the Department of Finance, Bureau of the Treasury, National Economic and Development Authority and the Bangko Sentral ng Pilipinas were spearheading efforts to secure the “A” rating which would be crucial in offsetting the impact of the preferential interest rates that the Philippines would lose once it ascended to upper middle-income country status by 2020.
He said the unprecedented “BBB+” rating the country got from S&P Global Ratings in April 2019 and the successful bond floats in 2019 marked deeper investor confidence on the leadership of President Rodrigo Duterte.
Dominguez said these achievements followed the game-changing reforms carried out by the president to energize the economy and spread its benefits across all sectors.
S&P upgraded in April 2019 the Philippines’ long-term credit rating from ‘BBB’ to ‘BBB+’, which is just a notch away from the coveted “A” rating.
The latest upgrade put the Philippines above countries like Italy and Portugal and just a step below countries like Spain and Malaysia. It also placed the Philippines on par with countries like Mexico, Peru and Thailand.
“Such a vote of confidence from one of the world’s most reputable credit rating agencies is a recognition of President Duterte’s unwavering commitment to bold reforms and sound economic policies as embodied in the 10-point socioeconomic agenda of the administration and his strong political will to get these tough initiatives done at the soonest possible time,” Dominguez said.
“These socioeconomic reforms being put in place by President Duterte are meant to sustain the growth momentum, attract investments, create jobs and spell a decent life for every Filipino,” he said.
National Treasurer Rosalia De Leon said “the upgrade is a recognition of our sound policies on liability management. We have kept our debt in check―even as we invest more in infrastructure and social services. We are committed to fiscal discipline, and this makes the Philippines a truly creditworthy sovereign in the eyes of the international financial community.”
S&P attributed the improvement in the Philippines’ rating to “its “above-average economic growth, a healthy external position and sustainable public finance.”
It said the stable outlook on the rating, “reflects our view that the Philippine economy will maintain its momentum over the medium term, in combination with contained fiscal deficits and stable public indebtedness.”
Dominguez said S&P’s upgrade “summarizes all our efforts to maintain fiscal discipline, contain inflation, build a business-friendly market, and achieve the highest international reserves ever,” which stood at a record $86.39 billion as of end-November 2019.
“This strong position has helped keep the local currency stable,” he said.
S&P said it might raise its ratings further 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.”
Another factor is a determination of a marked improvement in the Philippines’ “institutional settings.”
Dominguez said that on tax reform, the pending packages in Congress are the proposal to reduce the corporate income tax rate and rationalize fiscal incentives to make these performance-based, time-bound, specifically targeted and fully transparent; reforms in the land valuation system; reforms in the financial sector to help develop the capital markets; and a general tax amnesty contingent on the lifting of bank secrecy for tax fraud cases and the automatic exchange of information among regulatory agencies.
He said that subject to favorable market conditions, the government aimed to price its foreign bond issuances even tighter in 2020 given the credit rating upgrade, the prevailing negative benchmark yields and the expected easing from central banks as a counterweight to the weakening global economy.
The Philippines continued to secure tight spreads as low as 32 basis points over benchmarks for its bond issuances relative to other countries such as Indonesia, Mexico and Colombia across currencies in 2019.
It obtained tight spreads for its inaugural renminbi-denominated Panda bond float in 2018 and was received similarly during its return to the Samurai market that year.