By Luisa Maria Jacinta C. Jocson, Reporter
S&P GLOBAL RATINGS affirmed the Philippines’ investment grade rating on Tuesday and raised its outlook to “positive” from “stable” to reflect the economy’s strong growth potential amid improved institutional strength on the back of “effective policy making.”
The debt watcher on Tuesday affirmed its “BBB+” long-term credit standing for the country, which is a notch below the “A” level grade targeted by the federal government. It also kept its “A-2” short-term rating for the Philippines.
Still, S&P Global raised its rating outlook to “positive” from “stable.” A positive outlook means the Philippines’ credit standing might be raised over the subsequent two years if improvements are sustained.
“Our improved institutional assessment drives our positive outlook on the Philippines. We imagine the strengthening of the country’s institutional settings, which had contributed to a big enhancement within the sovereign’s credit metrics over the past decade, will proceed,” S&P Global said in an announcement. “That is demonstrated by the strong economic recovery within the last two years, and ongoing reforms to support business and investing conditions.”
“This improvement may lead to stronger sovereign support over the subsequent 12-24 months if the Philippines’ economy maintains its external strength, healthy growth rates, and that fiscal performance will strengthen.”
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said the debt watcher’s upgraded outlook “reflects the work the federal government has done to enhance the economic, fiscal, and monetary environment, enabling strong growth to proceed.”
Finance Secretary Ralph G. Recto likewise said this “reaffirms our stable economic and political environment and that we’re heading in the right direction to realize a growth-enhancing fiscal consolidation.”
“We have now a comprehensive ‘Road to A’ initiative to be certain that we secure more upgrades soon,” he added.
S&P Global said the Philippines’ sovereign rating reflects the economy’s “above-average growth potential.”
“This strength underpins constructive development outcomes. The rankings also profit from the country’s strong external position,” it added.
For the primary nine months of the 12 months, the Philippine economy expanded by 5.8%, barely below the federal government’s goal of 6-7% gross domestic product (GDP) growth this 12 months.
The federal government is targeting 6.5-7.5% GDP growth next 12 months and 6.5-8% growth from 2026 to 2028.
S&P Global expects Philippine GDP growth to average 5.5% this 12 months, driven by exports and easing inflationary pressures.
“Ongoing reform on the business, investment, and tax fronts should profit growth over the subsequent three to 4 years.”
The Philippine economy will likely grow at a median of 6.2% a 12 months over the subsequent three years, it added.
“Solid household and company balance sheets, and sizable remittance inflows underpin the Philippine economy’s positive medium-term trajectory,” S&P Global said.
“Ongoing efforts to deal with infrastructure gaps, and enhancements within the business climate through regulatory and tax reforms must also support growth in economic productivity.”
FISCAL REFORMS
The federal government’s fiscal reforms have also boosted the economic outlook, the credit rater said.
“We imagine that effective policy making within the Philippines has delivered structural improvements to the country’s credit metrics. Fiscal reforms have raised government revenue as a share of GDP and helped to fund public investment. Improved infrastructure and policy environment have helped to maintain economic growth strong in much of the past decade,” it said.
“The federal government’s fiscal and debt settings had deteriorated attributable to the economic fallout from the pandemic and the associated extraordinary policy responses. Fiscal buffers built through a protracted record of prudence before the pandemic thinned, but consolidation has begun with the economic recovery well heading in the right direction. The Philippines’ low GDP per capita relative to other investment-grade sovereigns temper these strengths,” it added.
Latest data from the Treasury showed that the budget deficit narrowed by 1.35% to P970.2 billion in the primary nine months.
The federal government is in search of to bring the deficit-to-GDP ratio to five.6% this 12 months and further all the way down to 3.7% by 2028.
“The Philippine government has generally enacted effective and prudent fiscal policies over the past decade. Improvements to the standard of expenditure, manageable fiscal deficits, and comparatively low general government indebtedness testify to this,” S&P Global said.
Nonetheless, the credit rater said restoring fiscal and debt settings to pre-pandemic levels shall be difficult and sure be a gradual process.
“The continued economic recovery within the Philippines should facilitate a discount in the overall government deficit and an extra stabilization of the debt burden,” it said. “It would, nonetheless, take several years for fiscal balances to recuperate to pre-pandemic levels given the eroded fiscal headroom.”
S&P Global added that it expects the country’s net general government debt to progressively decline amid continued fiscal consolidation.
Moving forward, the debt watcher said it could upgrade the Philippines’ credit standing if the present account deficit and financial position remain well-managed.
“We may raise the rankings if our expectations of current account deficits tapering over the forecast period are realized such that buffers within the Philippines’ narrow net external asset position are maintained and if the federal government achieves more rapid fiscal consolidation,” it said.
S&P Global expects the country’s current account deficit to persist but at “modest levels.”
The BSP estimates the present account deficit to achieve $6.8 billion this 12 months, such as 1.5% of GDP. In the primary half of the 12 months, the country’s current account deficit stood at $7.1 billion, accounting for 3.2% of economic output.
Then again, the rating outlook might be revised all the way down to “stable” if economic recovery slows down or if the federal government’s fiscal and debt positions deteriorate.
“If persistently large current account deficits result in a structural weakening of the Philippines’ external balance sheet, we’d also revise the outlook to stable,” S&P Global added.
