Japan Credit Rating Agency on Thursday upgraded the Philippines’ credit rating by a notch from BBB+ to A- , citing the country’s resilience amid a pandemic that has slowed down growth, impaired fiscal positions and hurt credit ratings of economies across the globe.
JCR assigned a “stable” outlook on the new rating, which indicates that the “A-” would be maintained over the near term.
JCR said its decision to raise the Philippines’ credit rating came on the back of its assessment that the impact of the COVID-19 crisis on the domestic economy and the government’s fiscal standing would be temporary, given the country’s strong fundamentals going into the crisis, the massive relief measures and the pursuit of important legislation such as the Corporate Recovery and Tax Incentives for Enterprises Act under the Comprehensive Tax Reform Program.
“JCR holds that a downturn will be limited given the country’s strengthened economic base, resilient external position, and the government’s economic stimulus package totaling more than 9 percent of GDP. JCR also considers that the fiscal soundness will not be impaired because while the fiscal deficit may widen, the package at this time is justifiable and the government debt will remain comparatively subdued,” JCR said.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said JCR’s assignment of an A- rating to the Philippines is encouraging news at this challenging time. “The agency’s decision reflects its confidence that the Philippines is pursuing appropriate policies that will help Filipino individuals, businesses, and the economy at large to recover from this unprecedented crisis. On the part of the BSP, we have already implemented a long list of extraordinary relief measures, and we stand ready to do more if needed,” he said.
“While we have temporarily veered our attention away from the ‘Road to A’ agenda because our focus at the moment is on saving lives, jobs, and livelihoods, we welcome positive assessments from international observers like JCR. We hope this helps to uplift the Filipino spirit at this trying time and to inspire us to work harder together to emerge stronger after the pandemic,” Diokno said.
JCR said the Philippine economy was expected to bounce back with a growth anywhere between 6 percent and 7 percent in the medium term following an anticipated contraction this year due to the effects of COVID-19.
The debt watcher also recognized the stability of the banking sector, noting that the average capital adequacy ratio of banks in the country stand at a comfortable 15 percent.
It cited the country’s manageable external debt balance (which was kept low at 22.2 percent of GDP as of end-2019) and the robust foreign currency reserves.
“JCR holds that the country will show its high resilience even when global risk-off moves would be triggered again by a second wave of COVID-19 pandemic,” it said.
The credit rating upgrade from JCR bodes well for the Philippine government’s fund-raising activities, which in recent years have included regular issuance of Samurai bonds. The investment guidelines of many Japanese institutional investors allow them to invest if JCR assigns an A- rating or higher.
Improvements in the Philippines’ investment grade ratings help the government to easily access funding at favorable costs and help boost overall investor perception on the Philippines.
The savings generated from cheaper borrowings will allow the government to spend more of its resources for much needed social services, such as health care and education as well as in job-generating infrastructure projects.
The rating upgrade from JCR came following the decision of Fitch to affirm the “BBB” rating it assigns to the Philippines and the move of S&P Global to affirm the country’s “BBB+”. Both investment grade ratings have a “stable” outlook.
The latest favorable rating actions on the Philippines by various credit rating agencies came amid a wave of credit rating downgrades and negative outlook revisions globally, as the COVID-19 pandemic take its toll not only on lives and livelihoods, but also on creditworthiness of many sovereigns.
The rating peers of the Philippines (sovereigns with ratings of BBB+ to A) with JCR include the following: Malaysia, Italy, Poland and Portugal (all of which are rated A); Thailand, Mexico, Hungary, and Peru (all of which are rated A-); and India and Indonesia (which is rated BBB+).
JCR said of the 14 credit rating actions that it has done since the start of the year, only three involved credit rating upgrades while the rest of the actions were either rating downgrades, negative outlook revisions, or rating affirmation.