Philippines bags coveted 'A' rating from Japan agency
MANILA, Philippines — The Philippines on Thursday secured its first ever "A" credit rating from Japan Credit Rating Agency Ltd. (JCR), which validated the strength of the economy to withstand the coronavirus disease-2019 (COVID-19) pandemic.
The Japan-based debt watcher, whose ratings matter to Japanese companies, the country's top investors, upgraded the Philippines to "A-" and assigned a "stable" outlook on the rating, which indicates no near-term adjustments are expected in the country's level of creditworthiness.
The upgrade marked a milestone of sort for the Duterte administration which, before the pandemic struck in February, vowed to improve the country's credit rating to the A-level as measured by major debt watchers Fitch Ratings, S&P Global Ratings and Moody's Investors Service. Among the three, S&P puts the Philippines a notch below A, while Fitch and Moody's ranked the country two levels below.
The economic managers, who said to have abandoned for now their "Road to A" campaign to focus on pandemic response, welcomed JCR's decision. "We thank JCR for its trust and confidence in the ability of the Philippine government to steer the economy back to its high-growth trajectory in due time," Finance Secretary Carlos Dominguez III said in a statement.
Acting Socioeconomic Planning Secretary Karl Kendrick Chua backed Dominguez. "We have sufficient fiscal space and economic resiliency to address the pandemic," he said in the same statement.
'Fiscal soundness not impaired'
Justifying its decision, JCR said "high and sustainable" economic growth in the Philippines reveal a high-level of resilience against the current pandemic shock, even when considering a potential second wave of COVID-19 infections.
While the economy shrank 0.2% in the first quarter, and is expected to contract further from April to June, JCR assessed that a "downturn will be limited given the country's strengthened economic base, resilient external psition and the government's stimulus economic package." JCR expects a 6-7% growth in the medium-term.
The debt watcher mentioned that the government's stimulus amounted to 9% of gross domestic product, in an apparent reference to the four-pillar economic strategy unveiled last March that include fiscal and monetary responses to the pandemic. As the Duterte administration relies heavily on the private sector to breeze through the outbreak, observers have called for a bigger budget, something Dominguez and Chua have repeatedly rejected.
"JCR also considers that the fiscal soundness will not be impaired because while the fiscal deficit may widen, the package at this time is justifiable and the government debt will remain comparatively subdued," it said.
A credit rating is a measure of an entity’s capacity to settle its debts. The higher the rating, the better the perception of investors on a borrower, and therefore the lower the interest charge on debts.
While central bank Governor Benjamin Diokno admitted the pandemic forced the government to veer away from its "A" rating goal, he nonetheless welcomed JCR's positive action, which also takes into consideration the banking system's strength.
"While we have temporarily veered our attention away from the ‘Road to A’ agenda because our focus at the moment is on saving lives, jobs, and livelihoods, we welcome positive assessments from international observers like JCR," Diokno said.
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