R&I affirms PHL’s ‘BBB+’ credit rating, upgrades outlook to ‘positive’

Rating and Investment Information, Inc. (R&I) has affirmed the Philippines’ credit rating of “BBB+” and revised its outlook to “positive” from “stable.”

In a report released on 7 August 2023, the Japan-based credit rating agency cited the country’s robust macroeconomic fundamentals, improving fiscal position, sound banking system, comfortable external payments position, and stable political environment as among the contributors to this assessment.

“BBB+” is two notches higher than the minimum investment grade and a notch below the “A-“ rating. A “positive” outlook by R&I indicates its views on the medium-term prospects of the country and that it “will upgrade the rating once the factors such as the economic growth path sought under the Philippine Development Plan 2023-2028, the stable macroeconomic condition, and the improving trend of fiscal consolidation are confirmed.”

            An investment-grade rating indicates lower credit risk, thus allowing a country to access funding from development partners and international debt capital markets at lower costs. This enables the government to channel funds that would have otherwise been allotted for interest payments to socially beneficial programs and projects.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the Philippine banking system remains a source of strength as it continues to support the funding needs of the country’s growing economy.

“Our Philippine banks have maintained more than adequate levels of capital and remained flush with liquidity. Unlike in previous crises, our banks are part of the solution rather than part of the problem.”

Governor Remolona added that inflation continued to ease, supporting the BSP’s assessment that inflation will return to the target range by Q4 2023. “Nonetheless, if upside risks persist, the BSP is prepared to resume monetary policy tightening as necessary to anchor inflation expectations and safeguard the BSP’s price stability objective.”

R&I emphasized that the Philippine economy performed well amid global economic uncertainties. This was supported by decelerating inflation, as well as strong private consumption and investments.

“In 2022, real gross domestic product (GDP) grew by 7.6 percent from the previous year, surpassing the target set by the government. The strong performance has continued through to 2023,” the Japanese debt watcher said.

Data from the Philippine Statistics Authority show that the Philippine economy grew by 6.4 percent in the first quarter of 2023, making it the fastest-growing economy among R&I-rated peers, such as Indonesia and Mexico.  The government’s GDP growth target for 2023 is 6.0 to 7.0 percent.

Moreover, R&I noted that it does not take a negative view of the country’s current account deficit as this is mainly due to the government’s aggressive infrastructure spending, leading to economic growth. On the external payments position, R&I highlighted steady inflows from overseas Filipino remittances and foreign direct investments, as well as ample foreign reserves.

The Japanese credit rating agency also said that “the [Philippine] government has allocated budgets in favor of infrastructure-related programs, reflecting the direction of policies it took over from the previous administration.”

In relation to this, Finance Secretary and Monetary Board Member Benjamin E. Diokno said the economic team remains committed to pursuing structural reforms and improving infrastructure development that are necessary to sustaining high and inclusive growth.

According to Secretary Diokno, economic liberalization measures, such as the amendments to the Retail Trade Liberalization Act, Foreign Investments Act, and Public Service Act, as well as the opening up of the renewable energy sector to full foreign ownership, have made the Philippines attractive to Japanese and foreign investors.

“Consistent with the Marcos Jr. administration’s Philippine Development Plan 2023-2028, the economic team will continue to improve the investment climate through structural reforms and the public-private partnership mechanism to enhance the quality and pace of infrastructure development,” Secretary Diokno added.