Credit-rating agency R&I on Tuesday affirmed the Philippines’s BBB rating on the basis of solid-growth prospects backed by a state-supported and aggressive investment in infrastructure.
The Japan-based credit watcher said the affirmation came with the assessment of continued economic expansion, buoyed by robust private consumption traced in part to stable remittance inflows.
R&I also particularly lauded the country’s rising share of investment in local output or the GDP, noting the aggressive public investment program initiated by President Duterte would serve as “a platform” for economic growth in the near-term.
The rating affirmation was also given a “stable” outlook, implying little to no room for a ratings movement in the next 12 to 18 months.
“The rating outlook is stable, because at present there are few factors that will exert downward pressure on the sovereign’s creditworthiness,” R&I said.
Cited as particular threats to the economy include the stubbornly low income levels of Filipinos despite accelerated growth, as well as rising price pressures attributed to local and global developments.
“R&I will keep an eye on whether solid economic growth will bring about a steady rise in income levels,” the credit watcher said.
“Going forward, given likely inflation pressure from tax reforms, higher oil prices and the weaker currency, as well as from buoyant domestic demand, consumer price trends and the way the Central Bank controls the situation would draw our attention,” the credit watcher said.
It also said it was not “disturbed” by the projected current account deficit and wider fiscal deficit this year despite concerns raised by other independent analysts.
“R&I does not immediately take a negative view of the shift from a surplus mainly attributable to remittances from overseas, which tend to be used for consumption, to a deficit stemming from capital goods imports that can be the seeds of future economic growth,” R&I said.
“Fiscal discipline is of little concern, in R&I’s view. While increasing expenditure particularly on infrastructure investment, the government gives due consideration to revenue generation and fiscal sustainability, as exemplified by the ongoing reforms to broaden the tax base. The Duterte administration has the strongest enthusiasm for larger infrastructure investment among recent administrations and is working to improve efficiency in spending,” it added.
The ratings agency also took into account the President’s rhetoric, saying his stance seemed to already have “shifted” in the course of his term.
“In the first months of his presidency, Mr. Duterte caused diplomatic friction with the US, a traditional partner on the political and economic fronts, and moved closer to China, with which the Philippines has territorial disputes in the South China Sea. Although such moves signaled potential significant changes in the Philippine government’s diplomacy, he shifted to a more realistic and pragmatic stance over time,” the ratings agency said.
“R&I believes that the risk of diplomatic relations dampening the economy has diminished after being elevated following his inauguration,” it added.