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PHL makes the grade expected to trigger investment rush


(Updated 6:58 p.m.) The Philippines has snagged an investment grade rating for the first time after Fitch Ratings upgraded the country's creditworthiness due to a resilient economy and improved fiscal management.

An investment grade rating could strengthen industries by attracting more investments, with the cost of funds usually lower since the rating indicates a well-managed economy in fiscal and monetary terms that serves as an assurance to creditors that they will be promptly paid. 

In a statement Wednesday, Fitch said it upgraded the Philippines from BB+ to BBB-, which reflects an investment grade rating.

The debt watcher also noted that the outlook for the Philippines is stable.

"This rating is unprecedented in the Philippines and can trigger the kind of investment that will help carry the country into its next phase of development," said Norio Usui, Country Economist at the Asian Development Bank.

“The Philippines' sovereign external balance sheet is considered strong,” Fitch said, noting a persistent current account surplus on the back of strong remittance inflow, which proved resilient through the global financial crisis that has rocked the world since late 2007.

Fitch said the Philippine economy—which expanded by 6.6 percent last year—remained strong amid a weak global economic backdrop.

“Strong domestic demand drove this outturn,” the debt watcher said, forecasting growth to hit 5.5 percent this year.

A first in PHL history

The Aquino administration has been trumpeting sound macroeconomic fundamentals in its effort toward achieving that coveted investment grade.

"After successfully reversing a decade of decline, [we are now] investment grade for the first time in our history. A landmark achievement!" Finance Secretary Cesar Purisima said in a text message to reporters.

"Investment grade opens up more sources of financing for our businesses, lowers the cost of borrowing, and encourages more investments, which in turn will lead to more jobs and greater incomes for our people," he said in a separate statement.

A Malacañang statement also listed the benefits of the improved credit rating.

"Greater access to low-cost funds gives us more fiscal space to sustain and further improve on social protection, defense, and economic stimulus, among others. More companies in the real economy can now consider us an investment destination," the statement said.

"This in turn enables industries to expand and generate more jobs for our countrymen—fostering a virtuous cycle of growth, empowerment, and inclusiveness that will redound to the benefit of Filipinos across all sectors of society," Malacañang added.

Aquino or Arroyo?

Fitch underscored the fiscal reforms of both the Aquino and Arroyo administrations as providing a springboard for favorable fundamentals.

“Improvements in fiscal management begun under President Arroyo have made general government debt dynamics more resilient to shock,” Fitch said.

A Palace spokesperson, however, dismissed the previous administration's contribution.

"What the Fitch ratings was referring to, according to Secretary Purisima, was the introduction of the value added tax. And that's the only contribution of the Arroyo administration to this statement here of the Fitch ratings," Presidential spokesperson Edwin Lacierda told reporters in a briefing at the palace.

Lacierda quoted the finance chief, who also served under Arroyo as Trade and Finance secretary, as saying that the previous administration had contributed to the decline of the country's credit rating

"I spoke to Secretary Cesar Purisima," Lacierda said. "He mentioned, for instance, that when former President Arroyo entered or inherited the presidency we were one notch below investment grade. Since then, it went down," he added.

"It was only in the time of President Aquino when we inherited the government that it was upgraded to BB+ and today we have this delightful announcement that we have been upgraded to investment grade status," the Palace official noted.

Lacierda also hopes that the investment grade rating will translate to more jobs for Pinoys.

"As more investments come in, there will be more opportunities for employment for our countrymen. And we hope that as more new foreign direct investments pour in, we'll have a greater number of people getting employed in various business opportunities," he said.

On the radar of investors

Jonathan Ravelas, BDO Unibank chief market strategist, said the upgrade primarily acknowledged the achievements of the Philippine government.

"It's the information that we're waiting for. Investment grade is now a reality. It's a validation to the government and what they have done," he said.

While noting that most market players have long priced Philippine assets as investment grade, Ravelas said the actual upgrade will boost investments to the country by lifting investor confidence higher.

"The upgrade will keep the Philippines at the radar of investors,” he said. “The next question is, who's next to upgrade us?"

Standard and Poor's rates the Philippines at BB+ or one notch below investment grade.

And despite keeping the Philippines' rating at Ba1 or one notch below investment grade, Moody's Investors Service has said fundamentals place the country well within the Ba1 to Baa2 ratings range, or as much as two notches above the investment grade floor.

Don't lose steam

Fitch, however, said the government must continue to pursue good governance, improve the revenue base, and promote human development to obtain a positive outlook.

"Governance standards, as measured in international indices such as the World Bank's framework, remain weaker than 'BBB' range norms but are not inconsistent with a 'BBB-' rating as a number of sovereigns in this rating category fare worse than the Philippines," it said.

The debt watcher said the level of human development in the Philippines is "less of an outlier against 'BBB' range peers."

Moreover, low fiscal revenue "limits the fiscal scope to achieve the government's ambition of raising public investment," it noted.

The Sin Tax reform law enacted late last year "will likely lead to some increment in revenues and underlines the administration's commitment to strengthening the revenue base," Fitch noted.

"Prudent measures to attract investment, improve the business climate and diversify the economy have paved the way for growth," said ADB's Usui. "Now it's up to the authorities to make that growth more inclusive by creating more and better jobs."

Bangko Sentral ng Pilipinas governor Amando Tetangco, Jr. said the upgrade should usher in a new era where all sectors are working together to make gains felt at the grassroots.

"The upgrade to investment grade status should inspire the entire government bureaucracy and the Filipino people to capitalize on the opportunities that will arise from this positive credit rating action," Tetangco said.

"We should continue to work together not only to achieve higher credit ratings but also to ensure that the gains from these benefit most of our people." — with a report from Patricia Denise Chiu/VS/BM/HS, GMA News
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