Next admin should pursue A-level credit rating – BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said the next administration of president-elect Ferdinand Marcos Jr. should continue the country’s pursuit of an A-level credit rating that was derailed by the impact of the pandemic.

BSP Governor Benjamin Diokno told participants of the Citi 2022 virtual macro forum that the Philippines was on its way to obtaining the much-coveted A rating before the global health crisis struck.

“While the virus set us back, the Philippine economy is strong, and the Duterte administration carried on its game-changing reforms. Not surprisingly, the international and regional rating agencies unanimously affirmed their investment grade ratings of the Philippines throughout the pandemic despite a wave of ratings downgrades of many advanced and emerging economies,” Diokno said.

S&P Global Ratings affirmed the Philippines’ BBB+ rating or two notches above minimum investment grade, while Moody’s Investors Service and Fitch Ratings maintained the country’s BBB rating or a notch above minimum investment grade.

However, Fitch lowered the Philippines’ credit outlook to negative from stable in July last year due to the impact of the pandemic.

Diokno said the new administration should craft a “well thought out fiscal consolidation framework, which is prepared by the Executive Department and ratified by Congress.’’

The BSP chief said the framework should include a timely and efficient implementation of the amended tax laws and the recent amendments to the Retail Trade Act, Foreign Investments Act, and Public Service Act, as well as an efficient allocation of budgetary resources by higher investment in public infrastructure and human resources.

Furthermore, Diokno said the winners of the May 9 polls should also improve tax-spending mix of local government units and at the same time rationalize the pension benefits of retired military personnel.

“In order to ensure full economic recovery and to sustain the Philippines’ long-term growth trajectory, the government has to pursue game changing reforms with vigor and resoluteness,” Diokno said.

The Philippines exited the pandemic-induced recession with a gross domestic product (GDP) growth of 5.7 percent last year, reversing the 9.6 percent contraction in 2020.

“The Philippines is well on its way to full recovery.  After the pandemic-driven recession in 2020, the economy grew by 5.7 percent last year and sustained its robust momentum with an 8.3 percent growth in the first quarter of 2022. Now, our original growth target of seven to nine percent this year appears to be doable,” Diokno said.

According to Diokno, the relaxation of mobility and activity restrictions for most of the country sustained growth as the spread of COVID was better controlled.

The BSP chief reiterated that the country’s macroeconomic fundamentals remain sound and solid.

“The Philippines was set to attain upper middle-income status before the pandemic. This remains doable within the year provided the current favorable economic performance is sustained,” Diokno said.

To curb rising inflationary pressures, the Monetary Board raised interest rates for the first time since November 2018 by delivering a 25-basis-point rate hike last May 19.

“The BSP’s withdrawal of policy accommodation will be done as recovery becomes fully underway, while remaining strongly focused on maintaining price stability,” Diokno said.