The decision of Fitch Ratings to raise the Philippines’s sovereign rating by one level bodes well for the private sector and for the government’s massive infrastructure program, according to the National Economic and Development Authority (Neda).
Socioeconomic Planning Secretary Ernesto M. Pernia told the BusinessMirror that the credit upgrade would allow the government to obtain cheaper loans to finance its “Build, Build, Build” program.
“The [upgrade] is a welcome development, especially at a time that we are seeing a sustained improvement in government spending. The upgraded rating reflects the steady and strong economic performance of the Philippines and the firm confidence of investors,” Pernia said in a statement.
“This positive outlook and ratings from global credit watchers encourages the whole of government to be more efficient and swift in executing the needed policy reforms and projects laid out in the Philippine Development Plan [PDP] 2017-2022,” he added.
Apart from cheaper loans for the government’s infrastructure projects, Neda Undersecretary Rosemarie G. Edillon also told the BusinessMirror that private investors and borrowers can also benefit from the upgrade, as this would make capital cheaper.
With the private sector also able to use the ratings upgrade to their advantage, policy-makers expect this to boost economic growth starting next year.
“But we still need to be aggressive in implementing the ‘Build, Build, Build’ program and other reforms cited in the PDP, especially those relating to ease of doing business,” Edillon told the BusinessMirror.
‘Vote of confidence’
The country’s Investor Relations Office (IRO) said credit-rating upgrades are “crucial measures” of a country’s willingness and ability to pay debts as they fall due.
“Because rating agencies take into account many factors in assessing a sovereign’s credit worthiness, including its macroeconomic fundamentals and institutional strength, higher ratings help to improve a country’s image before the local and international investor communities,” the IRO said.
“Higher ratings, therefore, also contribute to a more robust assessment of investors of the country’s growth prospects and investment environment,” it added.
Local economic managers also welcomed the development and expressed optimism of more rating upgrades in the near future.
“We are pleased that Fitch is finally convinced that the Philippine economy now is much stronger and more resilient than in 2013, when they granted the Philippines its first investment-grade credit rating of BBB-,” Finance Secretary Carlos G. Dominguez III said.
“While we are not targeting ratings per se, I am confident that, with these reforms, there will be more positive rating actions in the next couple of years,” he added.
BSP Governor Nestor A. Espenilla Jr. said the rating upgrade from Fitch is a recognition of the “positive transformation” that is taking place in the Philippines.
“The productive capacity of the economy is expanding. This is making possible higher GDP growth that is sustainable. Inflation is low and stable, while the balance of payments remains very manageable,” Espenilla said.
“The domestic financial system’s resources and profitability have continued to increase, governance standards and risk-management systems have been enhanced and significant inroads toward financial inclusion is being achieved,” he added.
Trade Secretary Ramon M. Lopez and Rep. Karlo Alexei B. Nograles of the First District of Davao City said the decision of the international credit-rating agency is an affirmation of the “soundness” of the Duterte administration’s economic policies.
“This is solid testament that ‘Dutertenomics’ and the president’s ‘Build, Build, Build’ program are working effectively. I just hope that this latest Fitch rating would be enough to prove that the administration is on the right track,” Nograles said. The chairman of the House Committee on Appropriations said the international body is now seeing the “positive effects of strong governance.”
“The administration’s strong-willed governance has demonstrated it can deliver much-needed reforms that our country needs and, at the same time, maintain the effective implementation of the government’s reform strategy, spelled out in the President’s 10-point economic agenda,” Nograles said.
The Management Association of the Philippines (MAP) attributed the Philippines’s recent Fitch Ratings’s credit upgrade to the momentum for infrastructure build-up, coupled with the move to ease economic restrictions.
“It’s [upgrade] a vote of confidence on President Duterte’s economic team. I can attribute this upgrade to various factors, among them the coming Overseas Development Assistance financing to start the major infrastructure projects from the government, the lifting and recommendation for lifting of the various economic restrictions in our foreign investment negative list,” MAP National Issues Committee Chairman Perry Pe said in a statement.
The rating on the Philippines’s long-term foreign currency-denominated debt was raised to “BBB” with a stable outlook, Fitch said in a statement on Monday. The upgrade puts the Philippines on a par with Italy and ahead of Indonesia.
Despite the controversy over Duterte’s antidrug war, Fitch said there’s no evidence it’s undermined investor confidence. The economy is set to remain one of the fastest expanding in Asia with growth of 6.8 percent next year and in 2019, the ratings company said.
“Strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates,” Fitch said. “Investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment.”
With Catherine N. Pillas, Jovee Marie N. dela Cruz & Bloomberg News