From B+ to A-

Last Saturday, Moody’s Investors Service was the latest to upgrade the credit rating of the Philippines. Moody’s, for short, rated the Philippines at BBB investment grade. After having completed its periodic review of the country’s credit rating, Moody’s latest positive outlook means Manila is a candidate for a ratings upgrade.

Rival debt-watcher Fitch Ratings Inc., an American credit rating agency, much earlier upgraded its credit rating outlook on the Philippines a week ahead. Moody’s followed Fitch that earlier gave the Philippines the highest B, or investment grade rating. New York-based Moody’s though did not issue any comment on the rating it gave to the Philippines in announcing the completion of the review.

But both Moody’s and Fitch were beaten to draw by Standard & Poor’s Global or S & P for brevity, also based in New York, which upgraded the credit rating of the Philippines to BBB in April last year.  All three independent international agencies provide credit ratings on bonds, countries, and other investments. 

Moody’s, along with S & P and Fitch, are considered the “Big 3” credit rating agencies. And all three credit rating agencies were one in their respective assessments that the Philippines deserved this upgrade in our country’s investment outlook.

But why is there so much fuss about getting a credit grade from BBB+ to A-?

At school, a B rating is just above average grade. But in the financing world, it’s a big deal. Because this means an obligor country like the Philippines that is rated ‘BBB’ has adequate capacity to meet its financial commitments.

This is two notches below the minimum A- credit rating that the economic managers of President Rodrigo Duterte targets to reach, hopefully sooner than later. An A rating will widen the market for Philippine sovereign debt and will allow it to seek lower interest payments.

At the Kapihan sa Manila Bay last Wednesday, Department of Finance assistant secretary Antonio Lambino noted with optimism the Fitch announcement made the day before our breakfast news forum on the upgrading the investment outlook for the Philippines from BBB to BBB+.

“This means it is like we are already one-half note higher,” Lambino cited.

Lambino, who during his younger years was one of the “Smoky Mountain” triumvirates of teenager singers, turned to music allusion to better explain the latest international credit upgrade of the Philippines. “Or, if we want to attain A level rating, we are one-half step closer to that,” Lambino hastily mentioned on a more serious note. So from BBB stable, the country has already reached the BBB+ grade, and the next level would be AAA-, he added.

Aside from the “Big 3” upgrade, the Japan-based R & I Rating and Investment Information Inc., another major international credit rating agency, disclosed that it has already raised to BBB+ rating of the Philippines also last week. Speaking before our Kapihan sa Manila Bay, Lambino credited the very strong macro-economic fundamentals the country has been building up for the past three years of the Duterte administration.

“So we are just one rating away from our first A credit rating. Why is it important to us?” Lambino posed this rhetorical question.

Because it will make the funds we sourced from abroad, Lambino giving his own response explained, to become cheaper in terms of lower interest rate charges on loans and borrowings for the public sector (government). For the private sector, he pointed out, they will be able to access funds from international sources that will invest only on A-rated countries. “We’re very close to that (A grade),” he quipped.

Only in December last year, Department of Finance (DOF) Secretary Carlos Dominguez bandied about the government’s slew of fiscal and economic measures geared to building up the country’s trek to the “Road to A,” or the bid to attain the much desired “A” creditworthiness standing from international rating agencies. Dominguez attributed these to the government’s ramping up various tax, financial and economic reform measures as part of the “Road to A” program aimed at obtaining the “A” credit rating.

This is because the country’s ability to raise enough revenue and minimize borrowings is critical in obtaining the much coveted “A” credit rating, Dominguez pointed out. The Finance chief strongly believes attaining this “A” credit rating is doable for the Philippines. 

From the website of S & P, the best credit grade is “AAA.” This rating means it is highly likely that the borrower will repay its debt. The worst is “D,” which means the issuer has already defaulted. They use multiple letters (sometimes accompanied by pluses or minuses) to indicate strength. In total, there are 17 ratings, even though S & P only uses four different letters. This is achieved by doubling or tripling letters – the more the better. Ratings can also include a plus  sign, which is better than stand alone letters, or a minus sign, which is worse than stand alone letters.

But the most important economic indicator, Lambino underscored, is that the country’s poverty rate has gone down. From latest official statistics of the government, he noted, the poverty incidence in the Philippines went down from 23.3% in 2015 to only 16.6% in 2018. Translated in simpler terms, Lambino cited this means 5.5 million Filipinos have lifted themselves out of poverty in three years. “This is what we’re focused on if the lives of our people are improving,” Lambino pointed out.

If that indeed happens, it would be for the first time in recent history of the country’s credit rating status attaining “A” to become a reality before the end of term of President Duterte in June 2022.

Lambino is being groomed to head the communication team of the Bangko Sentral ng Pilipinas to lead the country’s campaign to build up steam for the “Road to A” goal of the Duterte economic team. He will have to do a lot of work in projecting the Philippines deserves an upgrade of its creditworthiness and as an investment destination.