Philippines under review for 3rd major investment grade rating

MANILA, Philippines - Moody’s Investors Service may finally grant the Philippines an investment grade status after it put the country’s credit rating “on review for upgrade,” the debt watcher announced on Thursday.

The country is rated Ba1 under Moody’s metrics, the highest in junk grade status, putting the New York-based debt watcher behind its rivals, Fitch Ratings and Standard & Poor’s Ratings Services, which put the Philippines at BBB-, investment grade.

The Aquino administration has targeted reaching investment grade status, seen to lower debt interest payments, open up more credit avenues and lure more foreign investments to the country. 

In its statement, the Philippine economic performance was said to have “exceeded Moody’s expectations” against the backdrop of still-fragile global external demand. This, as inflation remained manageable with “no strong signs overheating” being seen.

The government’s balance sheet has also shown some improvements, Moody’s said, with the debt burden continued to decline while revenues are seen improving. 

The Philippine economy expanded by above-target 7.8 percent in the first three months of the year, pronounced as Asia’s fastest for that period. This was achieved with rise in consumer prices remaining benign at 2.9 percent as of the first half.

“The review will focus on the sustainability of the factors and the relative strength of underlying credit metrics compared to investment grade peers in the Baa rating range,” Moody’s pointed out. 

The credit rater said it could upgrade the Philippines to Baa3, an investment grade, should it sees “confirmation” of sustained debt reduction efforts and growth becoming more investment-driven. 

“These developments should also be accompanied by an assessment that the health of the country’s balance of payments and stability of financial system can be sustained,” Moody’s added.

Based on Moody’s figures, the local economy’s gross domestic product (GDP) per capita has improved to $4,412 last year, from just about $2,500 years ago. GDP per capita gauges how much of economic growth is shared by the population.

The improvement, it said, could be traced from a “robust” economic growth of 6.8 percent last year, among the highest in emerging markets, achieved through the strength of consumption and local investments.  

Government finances have also been kept in check, Moody’s said, while bond yields showing investor confidence that the state will be able to pay its borrowings have remained “stable and very favorable.”

In addition, local banks continued to be well-capitalized and liquid, providing additional buffer for funding needs especially at times of recent financial market volatility that showed capital moving away from Asia.

“The Philippines’ unfettered market access has been aided by its increasingly large domestic sources of financing that reflects both the health of its external payments position and ample liquidity in the country’s banking system— the only system worldwide deemed by Moody’s to have a positive outlook,” the credit rater explained.

Going forward, Moody’s also sees strength from the Aquino administration’s dominance of Congress in the last elections, suggesting reforms that have been stalled before could be continued.

“Furthermore, Moody’s notes that improvements in the investment climate could further bolster the Philippines’ economic prospects, while addressing revenue weaknesses,” it said.

“Greater progress on infrastructure development and a long-term solution to the long-running insurgency in Mindanao, for instance, could lead to higher foreign direct investments (FDI). The country's FDI levels are lower than its similarly rated peers,” it added.