Foreign credit rating analysts are among the most sensitive people in the world and they revise their ratings of individual-country creditworthiness only after the most rigorous analysis of their institutions, policies and governances. A bestowal of investment-grade status by the foreign credit rating agencies is something that countries strive for because of the access to reduced-cost foreign credit that such a status opens up.
I am saying all of this after having read a newspaper business story titled “Tax Reform to Upgrade Philippine Credit Rating—Diokno.” The story was based on an interview given recently to reporters by the Secretary of Budget and Management.
The following is what Secretary Benjamin Diokno said to the interviewers: “(T)he approval of the substitute tax reform bill by the Congress, despite the watered-down provisions, will put the Philippines in a good fiscal position and increase the chances for a (Philippine) credit rating upgrade. I think that the tax reform will actually strengthen our position. If we pass (it), we might even get an upgrade in credit ratings. I’m optimistic that we might get an upgrade.”
Mr. Diokno then proceeded to advert to the latest Department of Finance estimate of the additional revenue that the Duterte administration expected from its tax reform bill, which is called TRAIN (Tax Reform for Acceleration and Inclusion).
Said Mr. Diokno: “According to the latest estimate of the Department of Finance, the substitute tax reform bill deliberated in the House of Representatives could yield P82.3 billion in additional revenue to the government. This is lower by almost half the P157.2 billion in revenue projected in the original proposal of DoF, augmented by proceeds from complementary measures. Despite the lower-than-expected revenue, the government will be able to (keep) the fiscal deficit at around three percent of the GDP.”
From the foregoing it would appear (1) that the Duterte administration is aiming for a further credit-rating upgrade in the near future and (2) that its hopes are founded on the tax reform bill currently undergoing scrutiny by Congress. Those hopes can be said to rest on a weak foundation if the bill is the only additional-revenue source that it is looking to.
By Secretary Diokno’s admission, the House of Representatives, which is controlled by the Duterte administration’s so-called super-majority, has watered down the original DoF bill. By the time the Senate’s vested interests are done with it, a lot more projected-additional-revenue will have fallen by the wayside. The Duterte administration’s P9-trillion Build Build Build infrastructure program is going to have such a voracious appetite for funds that the budget deficit is bound to run away from the 3 percent of GDP so optimistically projected by Mr. Diokno.
A time of sharply scaled-up spending with weak budgetary support is not a good time for any country—let alone the Philippines—to aspire for a credit rating upgrade. Having to deal with Congressional vested interests and an inefficient (read: corrupt) institutional structure is bad enough for the DoF; being part of a government whose good relations with the international community are being eroded by an erratic Chief Executive makes the jobs of the DoF and the DBM doubly difficult.
Until your operating circumstances improve, a credit-rating upgrade for the Philippines is a forlorn hope, Secretary Ben. Put it aside and do your best trying to achieve what is achievable. Saying and doing things that are unachievable are not good for your professional reputation.
E-mail: romero.business.class@gmail.com