Philippines nears fresh ratings upgrade, says Tetangco

MANILA, Philippines -  The Philippines is a step closer to another credit rating upgrade after the House of Representatives approved on third and final reading the first package of tax reforms certified as urgent by President Duterte.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the country could get the long overdue rating upgrade from Fitch Ratings with the implementation of structural reforms such as the Comprehensive Tax Reform Program (CTRP).

“We remain confident that the continued strong performance of the economy, relentless pursuit of the governance agenda, and implementation of vital structural reforms such as the CTRP will soon finally translate to a long overdue upgrade from Fitch,” Tetangco said.

Last March 29, Fitch affirmed the “BBB-” rating or minimum investment grade on the sovereign debt of the Philippines. The country’s outlook was upgraded to positive from stable in September 2015 but has yet to translate to an upgrade in rating.

“We note that the Philippines has already exhibited considerable improvements in these rating factors since Fitch assigned the BBB- rating in 2013,” he said.

The Philippines’ 24 positive credit rating actions since 2010 as well as the distinctions received by the country’s banking system provide strong validation for our economy’s solid performance.

The highlight of the Philippines’ credit rating history came in 2013 when we finally achieved investment grade rating from Fitch, Moody’s Investors Service, and S&P Global Ratings.

The Philippines’ credit rating of Baa2 with Moody’s Investors Service, and its BBB rating with S&P Global Ratings, NICE Ratings, and R&I are one notch above investment grade.

Tetangco said the Duterte administration has been proactive to enact the points in its 10 point Socioeconomic Agenda, including maintaining sound macroeconomic policies, implementing tax reforms, accelerating infrastructure spending, and streamlining processes to improve ease of doing business.

“With sustained positive developments in these reform areas, we are optimistic that an upgrade from Fitch is only a matter of time,” Tetangco said.

Fitch expressly acknowledged the BSP’s “effective monetary policy stance given the maintenance of modest inflation levels, and the foreign exchange managed float regime – allowing the peso to act as a cushion against external shocks.”

It also recognized the BSP’s effective supervision of the country’s strong banking sector, which enjoys ample liquidity and capitalization levels, as well as healthy asset quality ratios.

In a research note titled “Philippines: Tax Reform – impact and implications,” Credit Suisse economist Michael Wan said the latest tax reform bill is positive for credit rating.

“We believe what matters most from the credit rating agencies’ perspective is the revenues generated over time, and not just one year’s revenues. While the revised version of the bill implies that some revenues will be back-loaded, the total tax receipts generated by 2020 are actually quite similar,” he said.

According to him, the additional tax revenues could raise spending by one percent of gross domestic product (GDP) while still lowering overall government debt metrics.

Euben Paracuelles, economist at Nomura Securities Ltd., said the passage of the first in a series of tax reform “packages” Wednesday evening with an overwhelming 246 to 9 vote is a significant step toward enacting this package into law within the year.

“We therefore view this as a positive step. There were concerns that this could be delayed following the establishment of martial law in Mindanao earlier this week, which also required attention from Congress,” he said.