S&P raises outlook for Philippine economy to 'positive,' hints at rating upgrade

MANILA, Philippines — S&P Global Ratings has raised its outlook for the Philippine economy, increasing the prospect of a rating upgrade for the country on the back of improving policymaking and solid economic growth.

In a press release issued late Thursday, the debt watcher said it revised its outlook for the Philippines to “positive” from “stable.”

Meanwhile, the country’s sovereign long-term credit rating was maintained at “BBB,” which signifies adequate capacity to meet financial commitments.

“The positive outlook reflects our view that improvements to the Philippines’ policymaking settings could support a track record of more sustainable public finances and balanced growth over the next 24 months,” S&P said.

“We may raise the ratings if the government’s fiscal reform program leads to further achievements over the course of the next 24 months,” it added, referring to the Duterte administration’s new tax law.

President Rodrigo Duterte last year signed into law the Tax Reform for Acceleration and Inclusion Act, which increases take-home pay for most wage earners while projected revenues to be foregone will be offset by higher excise levies on fuel and cigarettes, among others.

The Duterte administration plans to spend more than P8 trillion until 2022 to upgrade the nation’s dilapidated infrastructure and aging ports, and spur gross domestic product expansion to 7-8 percent.

S&P’s credit rating for the Philippines, which is one notch above minimum investment grade, matches the ratings earlier given by Moody’s Investors Service and Fitch Ratings.

A higher rating can lower the cost of borrowing in foreign currencies and can increase the country’s ability to attract foreign investment.

“We may also raise the ratings if the government's revenue enhancement measures lead to lower-than-expected deficits, which would have a knock-on effect on net general government indebtedness,” S&P said.

Warning

However, S&P cautioned that it may revert its outlook for the Philippines to “stable” if fiscal reforms hit snags.

“We may revise the outlook to stable if the reform agenda stalls, if the recalibrated fiscal program leads to higher-than-expected net general government debt levels, or if we deem that policymaking settings have otherwise regressed against our expectations,” the international debt watcher said.

“Uncertain conditions in export markets and inadequate infrastructure mainly in transportation and energy are the main downside risks to our growth outlook,” it added.

Reacting to the S&P’s decision, Bangko Sentral ng Pilipinas Governor Nestor Espenilla said “favorable credit rating actions are a welcome pat on the back.”

“The BSP is committed to its price and financial stability mandates, which have provided an environment conducive for economic growth and stability over the years,” Espenilla said.

“At the same time, the BSP is keen on helping push the economy toward the next stage of development through financial sector reforms, which are vital for accelerating growth and making it more inclusive,” he added.