S&P reaffirms Philippines' investment-grade 'BBB+' rating

MANILA, Philippines — Global credit watchdog S&P Global Ratings affirmed the Philippines’ investment grade rating amid nascent domestic economic recovery from the pandemic. 

In a statement on Thursday, S&P upheld the country’s "BBB+" investment grade rating with a “stable” outlook. 

S&P said this action reflects their expectation that the domestic economy will maintain its growth trajectory and its fiscal performance will improve in the next 24 months. 

S&P underscored the country’s “above-average economic growth potential,” considering the country’s modest 7.6% gross domestic product in the third quarter. Growth was kept afloat by consumer spending, which proved resilient amid painfully high inflation buffeting the Philippine economy.

The debt watcher noted that raising the country’s credit ratings is still in the books. If and when S&P acts on this hinges on developments that economists have been raising this year. 

“We may raise the ratings if the economy recovers much faster than we expect, and the government achieves more rapid fiscal consolidation. We may also raise the ratings if institutional settings, which contributed to a significant enhancement in the Philippines' pre-pandemic credit metrics over the past decade, further improve,” the credit watchdog said. 

The Duterte administration passed on a fiscal consolidation strategy to the new administration. The plan would see the national government implementing a bevvy of taxation measures to raise revenues.

This could prove ideal as S&P sees it. The national government was backed into a corner since fiscal space narrowed due to the Duterte administration’s borrowing spree to fund its pandemic response and the resulting debt servicing.

But the credit watchdog also noted that the Marcos Jr. administration’s policy support measures could hamper a “better fiscal outcome.” 

“The government's need to provide support measures countering high inflation hampers a better fiscal outcome,” the debt watcher said. 

S&P said the country’s fiscal balance could take years to rebound to 2019 levels, considering the depth of the economic contraction from the pandemic and response which deteriorated fiscal space. 

“So does slightly lower growth expectations against challenging external developments,” S&P said. 

The former administration held back for as long as it could from borrowing from creditors at the onset of the pandemic. Economic managers then feared that accruing high levels of debt could merit a downgrade from global rating houses. 

Even then, the debt watcher projected the national government would be able to trim the deficit to 5% of the GDP this year. If realized, this could prove narrower than the 6% recorded in 2021. 

S&P pointed out that the country’s economic growth could soften by 2023, in line with expectations of a global recession. The slowdown comes at the wake of central banks tightening interest rates in a bid to tame overheating inflation within their economies. 

The forecasted global recession is also expected to temper consumer spending. 

The Bangko Sentral ng Pilipinas, meanwhile, is expected to continue raising interest rates to tame inflation in the country which has not peaked. The key policy rate, currently at 4.25%, could land at 5% by tomorrow.

The credit watchdog also sees a downgrade in the picture if recovery from the pandemic loses steam. For S&P, this could lead to “a significant erosion of the country's long-term trend growth.”

“Indications of downward pressure on the ratings would be a sustained annual change in the net general government debt that is higher than 4% of GDP and the general government net debt stock exceeding 60% of GDP, or interest payments exceeding 15% of revenue on a sustained basis,” the debt watcher said. 

S&P pointed out that the country’s current account deficits could pave the way for the deterioration of the country’s external position, leading to a possible ratings downgrade.