Phl now investment grade

Noy on first-ever rating: Asia’s laggard taking off

MANILA, Philippines - What it means for Phl: An investment grade rating means the Philippines has a strong ability to meet its financial commitments fully and on time.

While credit ratings do not indicate investment merit, credit risk is one of the factors taken into consideration by businessmen. An investment grade sends a message that the Philippines is a safe place for investments, including big-ticket ones that generate much-needed employment.

Borrowing costs will also go down for debtor nations seen as unlikely to default. The Philippines, whose debt payments eat up the largest chunk of the annual national budget, can then channel savings to development efforts and improvement of basic services.

More investments, more jobs, and more funds for social services are expected after the country bagged yesterday its first-ever investment grade rating.

Debt watcher Fitch Ratings lifted the country’s credit rating to BBB- from BB+, with a stable outlook, less than a month after its team visited the Philippines for a diligence review of the country’s macro fundamentals.

New York-based Fitch made the move ahead of its rivals Moody’s Investors Service and Standard & Poor’s Ratings Service.

Both agencies put the Philippines one notch below the coveted status, with S&P having a “positive” outlook.

President Aquino welcomed the credit upgrade yesterday, saying it represented the “reclamation of our national pride” and showed that “the perennial laggard of Asia is taking off.”

“This means much more than lower interest rates on our debt and more investors buying our securities,” Aquino said in a statement. “Greater access to low-cost funds gives us more fiscal space to sustain and further improve on social protection, defense, and economic stimulus, among others.”

He said more investments and jobs would foster “a virtuous cycle of growth, empowerment, and inclusiveness that will redound to the benefit of Filipinos across all sectors of society.”

Like his predecessor, Aquino has been criticized for the failure of economic gains to trickle down to the masses.

Critics have also sniffed that positive economic growth under his watch has been fueled largely by remittances from overseas Filipino workers rather than job-generating foreign direct investments (FDI).

The Philippines lags behind many of its neighbors in FDI levels. Consistently high business confidence in the Aquino administration has failed to translate into any significant increase in FDI.

In his statement, the President said the credit upgrade “is an institutional affirmation of our good governance agenda: sound fiscal management and integrity-based leadership has led to a resurgent economy in the face of uncertainties in the global arena. It serves to encourage even greater interest and investments in our country.”

The Aquino government has enjoyed 11 positive credit rating actions before yesterday’s upgrade.

Gov’t execs hail upgrade

Government officials were quick to welcome Fitch’s decision.

“President Aquino’s matuwid na daan has led us to investment grade rating, another historic first under the President’s stewardship,” Finance Secretary Cesar Purisima said in a statement.

“The Philippine government remains determined to pursue the matuwid na daan and to ensure that these reforms are irreversible. This is the only way we can maintain inclusive economic growth over the long-term and achieve our developmental goals,” he added.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the “landmark” upgrade is proof that structural gains, coupled with “good governance reforms,” have been effective.

“The investment grade upgrade should inspire the entire government bureaucracy and the Filipino people to capitalize on the opportunities that will arise from the rating upgrade,” Tetangco said.

Budget Secretary Florencio Abad noted that the upgrade came as the administration is preparing for the second half of the Aquino administration.

“Over the next three years, we can expect the certain revival of the country’s manufacturing sector – especially its agri-based industries – toward more inclusive and far-ranging growth,” Abad said.

Resilient economy

In upgrading the Philippines, Fitch cited the country’s “strong” external payments position, good inflation management and fiscal consolidation efforts that kept the budget deficit in check.

“The Philippine economy has been resilient, expanding 6.6 percent in 2012 amid a weak global economic backdrop. Strong domestic demand drove this outturn,” the agency said in a statement.

Fitch expects the economy to grow 5.5 percent this year.

“The Philippines has experienced stronger and less volatile growth than its ‘BBB’ peers over the past five years,” it added.

Sustained remittance inflow, on the other hand, helped the country gain resources to meet its trade obligations and foreign debt payments.

Fitch credited the BSP for managing inflows well and for keeping inflation within target.

Furthermore, government efforts to improve its balance sheet, which began during the Arroyo administration, have started to pay off, Fitch said. It cited, among others, lower foreign liabilities and longer debt payment terms.

“Improvements in fiscal management begun under President Arroyo have made general government debt dynamics more resilient to shocks,” it explained.

Fitch also cited the enactment of the excise tax reform law, which it said would lead to “some increment” in revenues to help fund more government projects. It noted, however, that the country’s revenue take remained far lower than its similarly rated peers.

Good governance

Aquino’s good governance agenda was also welcomed. Fitch said making this a “policy priority” until 2016 would help improve the country’s governance standards to promote more reforms.

“The agency assumes the Aquino administration will persist with its fiscal, governance and social reform agenda,” Fitch said.

Purisima said the Aquino administration remains committed to eliminating corruption, investing in the people, and enhancing infrastructure and the overall business climate.

“We have already done so much in the past three years. With greater cooperation from our people, we can do so much more,” Purisima said.

A further credit rating upgrade will hinge on sustaining growth and fiscal gains. A downgrade is possible in case of budget slippage and reversal of reforms.

“The ratings incorporate an assumption that the Philippines is not hit by a severe economic or financial shock sufficient to cause a significant contraction in GDP and trigger stress in the financial system,” Fitch explained.

Fitch noted that among the “severe risks” to global financial stability, which could affect emerging market economies, are the breakup of the euro zone and “severe economic crisis” in China, the world’s second largest economy.

Seal of good housekeeping

In a press briefing, presidential spokesman Edwin Lacierda said share prices in the Philippine Stock Exchange hit a new high of 6,847.47 with news of the rating upgrade.

“This is the 85th overall high for the Aquino administration and the 24th high for 2013. The previous high was 6,835.21, which was last March 6,” Lacierda said.

“It’s really a seal of good housekeeping and a resounding vote of confidence in the Philippine economy,” he said.

“While we expect an investment grade rating to open new opportunities for the Philippines, it also poses a challenge to all of us to maintain it. Hence, the Philippine government will continue to focus on sustaining the progress that we have achieved both in terms of economic growth and institutionalizing good governance reforms,” Lacierda said. – With Zinnia dela Peña