The Philippine government’s initial venture to raise funds through renminbi-denominated bonds, or Panda bonds, has sent clear signals that optimism on the economy’s growth outlook has sound basis.
The Department of Finance (DOF) said a major Chinese credit rating agency has given a Triple A (AAA) rating with a stable outlook for the Philippines’s planned issue of Panda bonds worth 1.46 billion renminbi, citing the country’s strong and consistent economic growth, low level of external debt and ample foreign and current account reserves as plus factors for its float this year.
The DOF said China Lianhe Credit Rating Co. Ltd. also factored in the strong economic ties between Manila and Beijing, and the Duterte administration’s stable source of payment from growing government revenues in its positive credit rating assessment for the Philippines’s planned issuance of renminbi bonds.
“… Lianhe Ratings expects the Philippines to have a GDP growth of around 6.80 percent in 2018. At the same time, the Philippine unemployment rate is expected to remain stable, and CPI [consumer price index] growth may stay within the target band [of 2 percent to 4 percent] set by the BSP [Bangko Sentral ng Pilipinas],” the credit rating agency said in its report.
It likewise said the successful implementation of President Duterte’s 10-point socioeconomic agenda, citing among them the first package of the comprehensive tax reforms—Tax Reform for Acceleration and Inclusion—“will help the Philippines achieve more rapid and equitable economic growth in the following years.”
“The Republic of the Philippines has a well-established institutional framework, but its governance capacity is moderate, albeit improving remarkably in recent years,” the report added.
In its credit rating report on the Philippines, Lianhe said the country’s strengths lie in its strong and consistent economic growth, with employment continuously improving; government debt ratios that are continuously improving and well covered by fiscal revenue; large remittance inflows that contribute to the country’s ability to earn foreign exchange; low level of external debt and the very strong capacity to repay these obligations; and stable source of repayment from growing government revenues.
Lianhe also said the Philippines’s Panda bonds “have the lowest expectation of default risk.”
Lianhe’s rating was based on the Philippines’s application for registration of 1.46-billion renminbi-denominated Panda bond float with a tenor of three years, and the net proceeds to be remitted outside of China to serve as part of the Philippines’ international reserves.
National Treasurer Rosalia V. de Leon told financial reporters on Monday that the credit rating was expected, as the Philippine government’s planned Panda bond issuance is aligned with that of other economies, as well.
“That’s [AAA rating] expected because, prior to the Philippines, there are also other sovereigns who went to the Panda market, like Poland and Hungary. So we see that, given [that] we are aligned, Poland is higher rated than us, but Hungary I think is about the same, so we expect that we will get that AAA rating also,” de Leon said.
As for the planned issuance of the Panda bond, de Leon said the Bureau of the Treasury continues to look at market conditions and, if it is deemed favorable to the country, then the float will be issued.
“We got an AAA rating, so following that we are watching the market closely, and if there will be an opportunity for us to be able to go ahead and trigger the issue, then we will do so,” she added.
Image credits: Roy Domingo