MANILA, Philippines — Economic managers said the series of credit rating upgrades putting the Philippines nearer to the much coveted “A” scale would bring down the costs of overseas borrowings and at the same time attract more investors.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the decision of S&P Global Ratings to upgrade the country’s credit rating to BBB+ from BBB is recognition of sound economic management, prudent monetary policy and strong financial sector supervision.
“Over the years, the BSP has remained committed to its price and financial stability mandates, providing an enabling environment for the economy to flourish. Armed with a new charter that strengthens its ability to carry out its primary mandate of price stability and supervise the banking sector, the BSP will continue to lend support to the economic development goals of the country,” Diokno said.
The upgrade to two notches above minimum investment grade due to above-average economic growth, healthy external position, and sustainable public finance puts the Philippines just a notch away from “A-,” which is within the coveted “A” scale.
Finance Secretary Carlos Dominguez III said the upgrade is an undeniable tribute to President Duterte’s unwavering commitment to bold reforms and sound economic policies as embodied in the 10-point socioeconomic agenda and his strong political will to get these tough initiatives done at the soonest.
“To his credit, President Duterte has transcended all the political chatter and stayed focused on pursuing policy initiatives, such as tax reform, trade liberalization and infrastructure modernization, that are necessary to sustain the growth momentum, attract investments and ensure financial inclusion for all Filipinos on his watch. We also want to thank the legislature for their support of the President’s socioeconomic program,” Dominguez said.
BSP Deputy Governor Diwa Guinigundo said the one-notch upgrade “simply affirms the economy’s sustained strong performance capped by impressive policy and structural reforms that would ensure its positive long-term prospects.
“With such an upgrade, this would bring more interest among foreign investors to participate in the growth process and in the end, further establish and strengthen the upward trajectory of the Philippine economy,” Guinigundo added.
On the path toward an A-territory rating, Guinigundo said the biggest challenge is to pursue sustainability of policy and institutional reforms, growth and public finance.
“With a splendid record, I am sure we can do it,” Guinigundo said.
A higher credit rating helps lower the costs of overseas borrowing for both the public and private sectors and at the same time puts the country back in the radar of more foreign investors.
The decision of S&P to upgrade the country’s credit rating as well as the recent outlook upgrade by Japan Credit Rating Agency (JCR) to positive from stable came at a perfect time as the Philippines holds roadshows in Europe in preparation for the issuance of euro-denominated bonds.
Both S&P and JCR have assigned a BBB+ rating or two notches above minimum investment grade on the Philippines, while Moody’s Investors Service and Fitch Ratings assigned a one notch above minimum investment grade rating. The Philippines has secured more rating upgrades since bagging its first investment grade ratings in 2013.
A Philippine delegation led by Guinigundo and National Treasurer Rosalia de Leon are visiting key European cities including Zurich, London, Paris, Frankfurt and Milan to discuss the strengths of the economy to investors.
“We have kept our debt in check—even as we invest more on infrastructure and social services. We are committed to fiscal discipline, and this makes the Philippines a truly creditworthy sovereign in the eyes of the international financial community,” De Leon said.
The planned issuance of euro-denominated bonds is part of the Philippine government’s strategy to diversify sources of financing to support a robustly growing economy and the government’s dedicated efforts to address the country’s large infrastructure gap to increase productive capacity.
Aside from euro bonds, the Philippines is also planning to issue renminbi-denominated securities or panda bonds as well as yen-denominated or samurai bonds again this year.
The government borrows from both local and foreign creditors to finance its budget deficit, which is capped at 3.2 percent of gross domestic product (GDP) this year.
Aside from Guinigundo and De Leon, other members of the Philippine delegation include Investor Relations Office director Elizabeth Medina-Navarro and BSP Department of Economic Research director Dennis Lapid.
“Now that we are just a step away from reaching A-, the IRO’s efforts to communicate the Philippines’ favorable narrative to the international community will continue with even more fervor,” Medina-Navarro said.
ING Bank Manila senior economist Nicholas Mapa said the upgrade limits the reliance on interest rate differentials to bolster the peso as foreign flows are seen to continue even with less attractive carry trade opportunities.
“The Philippines is growing, the Philippines is evolving. Welcome to the new Philippine growth story,” Mapa said.