Standard & Poor affirms Philippines’s stable credit rating

MANILA, Philippines - Standard & Poor’s Ratings Services has affirmed its investment grade credit rating for the Philippines on the back of the country’s sound macroeconomic fundamentals.

The rating remains at BBB, a notch higher than the minimum score within the investment-grade scale. 

“The ratings on the Philippines reflect our assessment of its strong external position, which features rising foreign exchange reserves and low and declining external debt,” S&P said.

The rating is assigned a “stable” outlook, indicating it will likely stay the same over the short term in the absence of significant risk to the country’s creditworthiness.

“The stable outlook reflects our expectation that the key economic, fiscal, external and monetary credit measures for the Philippines will continue to improve,” S&P added.

Against a backdrop of sound fundamentals, S&P expects incomes to rise in the Philippines.

Growth in real per-capita income, based on its projection, will accelerate to 4.4 percent this year from 4.1 percent in 2015, and further to an average of 4.6 percent in the next three years.  Per-capita GDP, in nominal terms, is estimated to reach $3,000 this year.

S&P said it believes many of the sound policies implemented over the past six years are well entrenched and therefore are unlikely to be reversed even as a new administration steps in by the end of June.

“Our affirmation of the ratings is premised on the new administration after the May 2016 elections having a strong mandate to continue to pursue orthodox fiscal, economic and development policies,” it added.

The debt watcher highlighted the gains from sound policies, including declining debt burden, strong external payments position, modest inflation, robust consumption, growing investments and stable banking system. 

S&P expects the country’s external payments position to remain strong, adding that the country will continue to be a net external creditor to the rest of the world.

This position is aided by robust foreign-exchange inflows led by remittances, revenues of business process outsourcing sector and tourism receipts.

S&P also cited manageability of the Philippines’ debt as another key strength, noting the country’s “low” foreign borrowings that mostly have long-term maturities.

The $82.6 billion in gross international reserves (GIR) registered as of end-March can cover 10.3 months’ worth of imports of goods and payments of services and income. The GIR is also four times the country’s outstanding external debt falling due within the next 12 months.

Finance Secretary Cesar Purisima said the notch above the minimum investment grade rating is an encouraging affirmation of President Aquino’s record of sound economic management.

 “We still face strong external headwinds in the near term; we’ll keep our fundamentals strong and our debt resilient,” Purisima said

“With elections less than a month away, we are reminded of how far we’ve come. There will, of course, be a healthy amount of pressure on the next administration to sustain and build on this record,” he added.

The Investor Relations Office (IRO) said the affirmation by S&P of the Philippines’ favorable credit rating, together with the “stable”outlook, substantiates projections of sustainability of the country’s economic gains.

“The Philippines has implemented a wide array of structural reforms that are crucial for avoiding boom-and-bust cycles and that have placed the economy on a higher growth trajectory,” the IRO said.

“Among these are sound frameworks for monetary policy and bank supervision, which have respectively provided an inflation environment conducive for rising investments and consumption, and a banking sector that continues to fuel economic growth,” the IRO added.

S&P recognized the work done by the Bangko Sentral ng Pilipinas to provide an inflation environment and a financial system conducive to growth.

Earlier, the Philippines failed to get an upgrade from Fitch Ratings that rates the country at the minimum investment grade of BBB.

The Philippines credit rating of Baa2 with Moody’s Investors Service, and its BBB rating with Standard & Poor’s, NICE Ratings and R&I are one notch higher than the rating assigned by Fitch.

The Philippines’ credit rating of BBB+ with Japan Credit Rating Agency is two notches higher than the rating assigned by Fitch.