S&P affirms PHL's investment grade rating on strong external position

S&P Global Ratings on Wednesday affirmed the Philippines' investment grade credit rating with a stable outlook, noting the country's external position continues to offset the uncertainties hounding the three-month administration of President Rodrigo R. Duterte.

"The ratings on the Philippines reflect our assessment of its lower middle-income economy and rising uncertainties surrounding the stability, predictability, and accountability of its new government," S&P said in an emailed statement.

The agency affirmed the "BBB" long-term and "A-2" short-term sovereign credit ratings on the Philippines with a stable outlook.

The "BBB" rating means the country has adequate capacity to meet its financial commitments, but adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet its financial commitments.

Meanwhile, the "A-2" credit rating indicates that the country has a "satisfactory" capacity to meet its financial commitments, but "somewhat susceptible" to the adverse effects of changes in circumstances and economic conditions.

Central bank Governor Amando M. Tetangco, Jr. said the affirmation is a testament to the country's economic gains.

"The Philippines' ability to keep its credit rating well within the investment grade scale, which has transcended change in political leadership, is a testament that the country's economic gains have been built from deeply rooted structural and sound policy reforms over the years," he said in an emailed statement.

"Through continued conduct of sound monetary policy and prudent bank supervision, as well as efficient management of the country's external accounts, the BSP will help make sure these economic gains are further enhanced moving forward," he added.

For his part, Finance Secretary Carlos Dominguez III noted that while the S&P rating affirms that the Duterte administration is on the right track, its economic policy is clear and consistent.

"The Duterte administration is loud and clear in its message. We want to achieve a kind of economic growth that is not only robust and sustainable, but one that actually lifts significantly more Filipinos out of poverty," he said.

"If one is able to see through the noise created by negative headlines, he may have better and comprehensive understanding of the exciting, positive changes that are ahead of the Philippines," he added.

Duterte, the first chief executive of the country to hail from Mindanao, took his oath of office as the 16th President of the Philippines on June 30.

"The president has a strong focus on improving 'law and order,' which has allegedly resulted in numerous instances of extrajudicial killings since he came to power. We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to the legitimacy of the judiciary, media, and other democratic institutions," S&P, however, cautioned.

Some 2,400 persons have so far been killed, supposedly in connection with the administration's campaign against illegal drugs, Reuters said in a report earlier this month.

"Offsetting these weaknesses is the Philippines' strong external position, which features rising foreign exchange reserves and low and declining external debt," it the debt watcher said.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed the country's gross international reserves (GIR) rose to $85.90 billion as of end-August, wider than the $85.51 billion registered as of end-July.

"Other priorities include macroeconomic stability guided by orthodox fiscal, economic and development policies," S&P noted.

"We believe the Duterte administration will broadly continue with the fiscal and economic development policies of the previous administration," it added.

Duterte presented his administration's 10-point economic agenda in June.

Moving forward, S&P cited the scenarios for a ratings adjustment but made it clear an upgrade is a remote possibility in next 24 months.

"A higher rating is unlikely over our two-year ratings horizon. We may raise the ratings if continued fiscal improvements under the new administration boost investment and economic growth prospects, or if improvements in the policy environment lead us to a better assessment of institutional and governance effectiveness," it said.

"We may lower the ratings if, under the new administration, the reform agenda stalls or if there is a reversal of the recent gains in the Philippines' fiscal or external positions," it added. — Jon Viktor Cabuenas/VDS, GMA News