S&P gives Phl another credit rating upgrade

MANILA, Philippines – The Philippines has received a one-notch credit upgrade to BBB “with a stable outlook” from Standard & Poor’s Ratings Services – the highest the country has received so far from any credit ratings firm.

“We raised the ratings because we now believe the ongoing reforms to address shortcomings in structural, administrative, institutional and governance areas will endure beyond the current administration,” S&P said in a statement yesterday. Its previous rating for the Philippines was BBB-.

“In turn, we believe the resulting gains in government revenue generation, spending efficiency and the improvements in public debt profile and investment environment will at least be preserved in the medium term under the next administration,” S&P added.

Malacañang said it felt “gratified” by S&P’s upgrade and expressed hope it would “translate into increased investments and accelerated jobs generation.”

“The Aquino administration is committed to strengthen public institutions and build increased capacity among citizens and communities. This is the path that leads to sustained economic growth and the raising of the Filipino people’s quality of life,” Secretary Herminio Coloma Jr. of the Presidential Communications Operations Office said.

S&P gave the Philippines an investment grade rating in May last year, citing in particular the country’s stellar 7.2 percent growth as well as the reforms being instituted by the Aquino administration.

In its statement yesterday, S&P said that while a possible change of administration after the presidential elections in 2016 “represents some uncertainty for reforms,” the risks have shifted toward “maintaining the impetus and direction of the process, away from a potential reversal or abandonment of advances achieved to date.”

The debt watcher also said the latest upgrade reflects the country’s “strong external liquidity and international investment position” matched by an effective monetary policy framework.

S&P also cited the country’s manageable inflation, with interest rates remaining at low levels.

“The Philippines’ strong external profile is an important credit support. With a long track record of balance-of-payments surpluses, the Philippines has accumulated a substantial foreign exchange reserve buffer,” S&P said.

“That buffer affords an import coverage ratio above prudential norms and low refinancing risk,” the debt watcher added.

The country posted a BOP surplus of $5.085 billion in end-2013, a little more than half of the $9.236-billion surplus recorded in 2012.

At the same time, S&P said it sees foreign exchange-denominated earnings further improving on rising remittances and the bustling business process outsourcing sector.

“An improved monetary policy environment is another rating support. Philippines’ inflation has been low and fairly stable in the face of repeated external shocks, even as lingering structural and institutional shortcomings curb the effectiveness of its monetary policy,” S&P said.

“As a result, inflation expectations are well anchored, enabling a low interest rate environment to take hold,” it added.

But the debt watcher pointed out that the economy’s low income level remains to be a “key rating constraint.” Moreover, the ratings are hampered by a “moderate revenue-generating capacity” because of the narrow tax base and non-compliance. –-Kathleen Martin (The Philippine Star) with Aurea Calica