China Lianhe Credit Rating Co. Ltd. affirmed the “AAA” long-term issuer rating of the Philippines, bestowing the highest level of confidence in the country’s ability to service financial obligations despite the toll caused by the pandemic.
Lianhe’s sovereign credit rating methodology showed that an “AAA” rating indicates a creditor has extremely strong capacity to pay its financial commitments; is highly unlikely to be affected by adverse economic conditions; and has the lowest expectation of default risk.
The Chinese debt watcher on Tuesday also affirmed the “stable” outlook on the rating, which signals a low likelihood of a rating change over the short term.
The Investor Relations Office of the Bangko Sentral ng Pilipinas said the latest rating action from Lianhe bodes well for the Philippines’ ability to continue accessing financing from Chinese investors, such as via sale of government bonds, at low interest rates.
The Philippine government issued Panda bonds as part of its efforts to diversify funding sources. The Philippines’ maiden issuance of RMB 1.5 ($230 million) in 2018 was met with strong demand and was priced at just 35 bps above the benchmark. Of all sovereigns, the issuance had the most oversubscribed order book of 6.3 times the offer at the time of the issuance.
The Philippines raised RMB 2.5 billion ($363 million) from its second sale of Panda bonds in 2019 that similarly saw strong demand from investors. The three-year debt fetched a 3.58 percent coupon that represented a tight spread of just 32 basis points above the benchmark. The order was 4.5 times oversubscribed, reaching a total of RMB 11.25 billion.
Lianhe noted that the Philippines, like many countries across the globe, suffered a recession because of the pandemic. Nevertheless, it said, the Philippines kept the impact of the pandemic on its finances manageable—aided in part by revenues generated from tax reforms—and is headed toward recovery.
“Although the fiscal deficit widened further, government debt remained within acceptable threshold…Looking forward, the Philippines’ economic and fiscal performances are expected to recover in 2021 and 2022 on the back of gradually easing pandemic and continuous tax reforms,” Lianhe said.
It expects the Philippines to have a GDP growth of around 7 percent in 2021 and 2022.
Finance Secretary Carlos Dominguez III said this development was an affirmation of the Philippines’ robust fiscal position—resulting from President Duterte’s prudent fiscal policy and game-changing initiatives such as tax reforms–that will enable the country to pull through the pandemic damage.
“The importance of fiscal discipline cannot be overly emphasized. Because of it, the Philippines has enjoyed creditor and investor confidence, which has led to favorable terms like lower interest rates on government borrowings and, therefore, more space in the national budget for vital expenditures like infrastructure, social services and COVID-19 response,” Dominguez said.
Meanwhile, Moody’s Investors Service said Tuesday the country’s pace of vaccination program against the COVID-19 virus would determine how fast the Philippine economy wold recover from the devastating impact of the pandemic that caused a record 9.6-percent contraction in 2020.
Christian de Guzman, senior vice president at Moody’s Sovereign Risk Group, said in an online briefing that the Philippines was one of the countries most affected by the pandemic in terms of “economic scarring.”
“We don’t see real economic activity unless until 2022… Real economic activity will recover to 2019 levels only by 2022, lagging regional peers,” de Guzman said.
“The biggest variable here is the pandemic and how fast they can vaccinate people… The risks to economic scarring will continue to be elevated as long as the pandemic persists,” de Guzman said.
For 2021 and 2022, the rating agency placed its growth forecasts for the Philippines at 5.8 percent and 6.5 percent, respectively.
De Guzman said the 5.8-percent GDP forecast for 2021 did not take into account the scheduled stricter two-week enhanced community quarantine in Metro Manila from Aug. 6 to 20.