PH improving credit standing

PHL readies road map for an ‘A’ credit rating

Bernadette D. Nicolas
Business Mirror
09 May 2019

THE Bangko Sentral ng Pilipinas (BSP) is looking to finalize—along with the Department of Finance (DOF) a road map next week to ensure a calibrated approach to the Philippines’s “active pursuit of an A level rating.”

The Philippines last week received its highest credit rating from a major ratings agency to date, as S&P Global Ratings announced that it is assigning a “BBB+” rating on the Philippines’s long-term sovereign credit rating.

With just a notch away from the “A” level rating, BSP Deputy Governor Diwa C. Guinigundo said they are now embarking on an agenda called the “Road to A.”

Guinigundo said the BSP and the DOF are eyeing to organize an interagency committee that would formalize this road map.

“Such road map will evidence the buy-in and commitment of key economic and infrastructure officials to get our efforts properly credited to A before 2022 to help further bring about more benefits to the economy and to our people,” he said in a Palace briefing.

Moving forward, Guinigundo said their goal is to sustain policy and structural reforms, which he said is one of the nonnegotiable keys to an upgrade aside from continuous engagement with the credit-rating agencies. “We have a long way to go, many more miles to travel. We don’t need a crisis or an international financial institution to tell us what to do. We shall be doing things for the sake of our people. If these efforts start bearing fruits that are good to eat, then the upgrade will just logically be a consequence,” he said.

Guinigundo pointed out that efforts must also be directed at addressing these issues: further increasing the country’s per-capita income, enhancing the country’s potential input, strengthening the external payments buffers, keeping prices stable, fortifying public finance and elevating governance standards.

“So all of these, I think, are priorities of the national government in addressing these particular issues—not because we wanted another A or another upgrade, but because pursuing these very important reforms on various fronts will be useful to us, because we want to sustain our economic growth; we want to make sure that employment opportunities are available and to make a dent in terms of our efforts to reduce poverty in the Philippines,” he added. 

Meanwhile, Finance Secretary Carlos G. Dominguez III stressed that the credit-rating upgrade is a direct result of President Duterte “choosing to invest his political capital wisely in difficult but game-changing reforms” such as the Tax Reform for Acceleration and Inclusion (TRAIN) law and the Rice Tariffication Act. 

Dominguez, however, immediately pointed out that they did not pursue these reforms to get a better credit rating. 

“This upgrade is the effect of pursuing ‘game-changing reforms’ that would lead to a flourishing economy and a more comfortable life for law-abiding Filipinos,” he said. 

“The effect of a BBB+ rating may not be immediate, but it is very clear, it is a stepping stone to our goal of achieving and sustaining upper middle-income country status in the near future,” he added. 

P3-B savings

NATIONAL Treasurer Rosalia V. de Leon also cited the potential benefits of the country getting this credit-rating upgrade, including generating savings of at least P3 billion for commercial bond issuances and attracting more foreign direct investments that would lead to more jobs.

Since foreign investors have stringent guidelines before investing, de Leon explained that they will not go to an economy with a credit rating lower than BBB. 

“So with the BBB+, we’re able to throw the net far and wide, catch more fish into our pond of borrowing,” she said.

Even the private sector will also reap the benefit of lower cost of borrowing from the credit-rating upgrade, noting that the national government is considered as the benchmark for borrowing rates. 

“So if we borrow at this level, even the private sector would also be reducing their own borrowing cost. So, what does it mean? Then they will be able to have more capital expenditures, produce more jobs,” she said.

“This is more inspiring for us because all the fruits of our labor are now producing results. And we are more challenged but, at the same time, more inspired to deliver more reforms, and at the same time, really make it up to the coveted A rating that we are all also aspiring for,” she added. 

PH: Potentially Asia's fastest growing economy

Philippines has 'potential' to become Asia's fastest-growing economy: ADB

Cathy Yang

ABS-CBN News

02 May 2019 

NADI, Fiji -- The Philippines has the "potential" to become the fastest-growing economy in Asia, propelled by an unprecedented infrastructure overhaul, tax reform and a young workforce, the Asian Development Bank said Thursday.

A recent credit rating upgrade from S&P Global is also an indication of the "fundamental strength" of the Philippine economy, which has maintained growth at above 6 percent, said ADB Chief Economist Yasuyuki Sawada.

The Philippines' GDP growth has been among Asia's fastest, racing China and Vietnam. Official first quarter GDP numbers are due out on May 9, the same day as the Bangko Sentral ng Pilipinas' policy-setting meeting.

"It's quite possible for the Philippines to be the fastest-growing economy in Asia," Sawada told ANC. Debt is "well under control" and over-all fundamentals are "quite strong," he said.

The Philippines' work pool is also English-proficient and among the youngest in the region, with an average age of 28. Sawada said this would serve the needs of technology and business process outsourcing companies.

TRADE WAR RISK

The trade war between the US and China poses the "highest risk" to economic growth in Asia.

Should growth in China slow down because of the trade dispute, it could adversely impact the region indirectly, Sawada said on the sidelines of the ADB Annual Meeting here.

The same slowdown, however, could provide Asian economies an opportunity to offer themselves as an alternative to China, he said.

"The overall impact to Asian economies is rather moderate and strictly speaking, slightly positive," he said.

The Asia-Pacific region is the "global engine" for growth, contributing 60 percent to the world's economic expansion, he said.

ADB Chief Economist Yasuyuki Sawada speaks to ANC's Cathy Yang on the sidelines of the Asian Development Bank's annual meeting in Nadi, Fiji. ABS-CBN News

DISASTER RESILIENCE

Disaster-prone countries like the Philippines should consider resilience when building new infrastructure.

A recent earthquake in Central Luzon killed over a dozen people and damaged Clark Airport, highlighting the country's location in the Pacific "Ring of Fire." The Philippines is also battered by an average of 20 typhoons per year.

"Building back better is a concept, after the disaster, putting back society and the economy in a better situation than the status quo prior to the disaster," he said.

"I think this shift in focus is quite an important element of building back better," he said.\

In a statement in Manila, Presidential Spokesman Salvador Panelo said Malacanang was "pleased" with the S&P Global upgrade.

"The economic team of the President has done a splendid job in putting the economic house in order and spearheading bold economic reforms, in cooperation with Congress, in bolstering the domestic economy, which is projected to become the world's top 25 economy," he said.

PH favorable growth prospects

Fitch affirms Philippines’ debt rating


Business World Online
20 December 2018


“The ratings on the Philippines balance favorable growth prospects, lower government debt and a net external creditor position against lower per capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers,” - FITCH

FITCH RATINGS has maintained its grade for Philippine debt, citing the country’s sustained strong overall economic growth even as it flagged overheating risks evidenced by rapid bank lending and a growing trade gap.

The global debt watcher kept the Philippines’ credit rating at “BBB” — one notch above minimum investment grade — with a “stable” outlook. This is meant to vouch for the Philippine government’s ability to pay its debts, in turn helping reduce borrowing costs from foreign creditors.

“The ratings on the Philippines balance favorable growth prospects, lower government debt and a net external creditor position against lower per capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers,” Fitch said in a Dec. 19 statement.

This comes a year after Fitch upgraded the Philippines from minimum investment grade, putting it on the same level as the ratings given by S&P Global Ratings and Moody’s Investors Service.

Fitch credit analysts drew optimism from “favorable” growth prospects here, as they expect strong domestic demand and rising infrastructure investments led by the state to propel expansion. They expect gross domestic product (GDP) to grow by 6.6% in 2019 and 2020, faster than the 6.3% January-September average.

Robust state spending for infrastructure will continue to drive growth, while keeping the budget deficit “manageable” at three percent of GDP over the next two years and in line with government projections.

At the same time, revenue collections are rising on a boost from the first tax reform package that took effect Jan. 1.

A healthy fiscal balance will keep the country’s debt burden “broadly stable” at 37% of GDP by 2020 from 37.5% this year, Fitch added.

Fitch also expects inflation to slow in 2019 after overshooting the central bank’s 2-4% target band this year. “Fitch expects full-year inflation to average 5.2% in 2018 and to decline to within the central bank’s target range of 2-4% in 2019 and 2020 as the cumulative rate increases of 175bp (basis points) in 2018 take effect and as the impact of excise tax hikes in 2018 dissipates,” the debt watcher said.

However, Fitch flagged overheating risks — or signs that the economy may be growing faster than potential that is capped by constraints like inadequate infrastructure — as seen through double-digit increases in bank lending as well as a ballooning external trade gap. “Fitch believes that overheating risks remain in place, highlighted by rapid credit growth and a widening current-account deficit, although the central bank’s stated intention is to remain vigilant against developments that could affect the inflation outlook,” the statement read further.

The current account — which measures fund flows from goods and services trading — is expected to expand to a $6.4-billion shortfall this year, equivalent to 1.9% of GDP which would be the widest since 2001. Latest data from the Bangko Sentral ng Pilipinas (BSP) put the current account deficit at $6.47 billion in the nine months to September, as imports continued to outpace exports.

Fitch said it sees the current account deficit at equivalent to two percent of GDP this year due to a surge in capital goods imports and a sharp drop in exports. The level is likely to be sustained at 1.9% of GDP in the next two years, buoyed by dollar inflows from remittances, tourism receipts and outsourcing revenues.

BSP Deputy Governor Diwa C. Guinigundo countered this view, saying the economy is not in danger just yet.

“While credit is growing, the pace of increase is within levels considered manageable based not only on the BSP’s own metrics but even on international benchmarks. Additionally, credit growth in the country is driven not only by consumption, but more importantly by investment activities which boost the economy’s productive capacity,” Mr. Guinigundo said in a press statement.

“As such, we see growth in demand continually and sufficiently being matched by rising supply, thereby continuing to dampen demand-side inflationary pressures moving forward.”

Still, the credit rater draws optimism from “high” dollar reserves maintained by the BSP and a “fairly steady” banking sector.

Foreign direct investments should also receive a boost from the recent easing of the government’s negative list that otherwise spells out sectors and economic activities where foreign participation is either banned or restricted.

Continued strong economic growth, stronger governance standards and increased revenue collections may trigger credit rating upgrades in the future, Fitch said.

On the flip side, the reversal of reforms and a “sustained period of excessive credit growth” could lead to downgrades. — Melissa Luz T. Lopez

NICE keeps PH investment grade

Korean debt watcher keeps investment grade rating for Philippines

MANILA, Philippines — South Korea-based credit rating company NICE Investors Service has retained the BBB rating of the Philippines amid the country’s ability to weather external headwinds and the government’s prudent tax and spending policies.

The existing rating of the Korean debt watcher is a notch above the minimum investment grade. It has also assigned a “stable” outlook on the Philippines, given perceived absence of factors that can materially affect the country’s creditworthiness over the short term. Miguel de Guzman/File

“The policy direction of the Duterte administration that is set to increase government expenditure through expanding the tax base is deemed appropriate, given the need for infrastructure investment. The government’s tax reform and infrastructure investment acceleration are already showing tangible effects in 2018,” NICE said in its latest report on the Philippines released Oct. 31.

Noting the volatility in the foreign exchange market globally as a result of the US-China trade war and interest rate hikes in advanced economies, NICE said the impact will be appropriately managed, “given the country’s response capability in terms of forex liquidity.”

The first package of the Duterte administration’s tax reform – Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law – took effect in January this year, generating net revenues for the government, helping fund the Build Build Build initiative.

Among other provisions, the law slashed individual income tax rates, and adjusted excise taxes on oil, automobile sales, and sugary drinks.

NICE said the country’s gross domestic product (GDP) would expand by 6.3 percent this year, slightly lower than last year’s 6.7 percent.

NICE also said elevated inflation this year is not expected to undermine the country’s short-term macroeconomic stability, especially with the BSP’s exhibited commitment to price stability.

Inflation accelerated this year largely on account of supply-side factors and is not expected to be persistent.  It averaged five percent in the first nine months of the year, exceeding the BSP’s two to four percent.

The series of tightening measures adopted by the central bank is expected to rein in inflation expectations and address second round effects.