Japan Credit Rating Agency to look closely at Mindanao security situation

The Japan Credit Rating Agency Ltd. (JCR) on Thursday affirmed its investment grade rating on the Philippines with a stable outlook, but emphasized that it will closely monitor the security situation in Mindanao.

"On the socio-political front, a spate of violent and lawless acts in the island of Mindanao led to the declaration by government of a state of national emergency in September 2016, which was followed by the declaration of martial law in the entire island in May 2017 in order to suppress lawless violence and rebellion by terrorist insurgents in Marawi City and to ensure public safety," it said in a statement released on Thursday.

The JCR affirmed both its local and foreign currency long-term issuer rating on the Philippines at "BBB+" with a stable outlook.

"BBB+" is an investment grade rating, and a notch off an "A" category which indicates a "high" level of certainty to honor financial obligations.

A "BBB+" rating means that the Philippines has "an adequate level of certainty to honor the financial obligations. However, this certainty is more likely to diminish in the future than with higher rating categories," according to the JCR rating scale.

"The ratings mainly reflect the country's high level of economic growth underpinned by expanding domestic demand, resilience to external shocks supported by declining external debt and accumulation of foreign exchange reserves, and continued reduction of government debt burden," it said.

In September 2016, President Rodrigo R. Duterte signed Proclamation No. 55, "Declaring a state of national emergency on account of lawless violence in Mindanao" after a bombing incident in Davao City.

He declared martial law in Mindanao on May 23, following a deadly clash between the government troops and ISIS-linked terrorists in Marawi City.

"JCR's ratings opinions are valuable for the Philippines as these help guide mostly Japanese companies in their investment decisions," the Bangko Sentral ng Pilipinas (BSP) Investor Relations Office (IRO) said in a separate statement Thursday.

Foreign direct investments (FDIs) from Japan accounted for 48.8 percent of the $2.035 billion net equity FDI in 2016.

"The rating and outlook assigned by JCR to the Philippines are a testament to the confidence it has on the economy and to the trust it bestows on the ability of concerned authorities to continue managing the economy well," BSP Governor Nestor A. Espenilla Jr. said.

"As far as the BSP is concerned, we will continue doing our share for the economy by striving to consistently fulfill our mandate of price and financial stability. Included in this task is prudent management of the country's external accounts so that the economy maintains sufficient buffers against external headwinds," he added.

In a separate statement, Finance Secretary Carlos G. Dominguez III welcomed the latest development.

"Our BBB+ rating with JCR, along with our investment grade credit ratings with other rating agencies, adds to the plethora of positive assessments of the Philippine economy by local and foreign business groups and multilateral agencies under the leadership of President Duterte," he said.

Global debt watcher Moody's Investors Service affirmed late last month the Philippine investment grade at "Baa2" with a stable outlook.

"The Philippines will stay on a path of robust growth, as JCR projected, and of making the growth more inclusive. Under the 10-point socioeconomic agenda of the Duterte administration, the government will spend much more on infrastructure and social services," Dominguez said.

"Spending will be larger in the poorest areas of the country so that they can attract more job-generating investments and so that residents will have better chances of getting better quality jobs," he said.

The Philippine gross domestic product grew by 6.9 percent last year.

The government intends to grow the economy by 6.5 to 7.5 percent this year.

Dominguez said the declaration of martial law in Mindanao only indicates that the government is on top of the situation.

“With Martial Law in place in Mindanao, the government shows it is on top of the situation — that it is containing the conflict in Marawi City and committed to restoring peace in that area and in all of Mindanao,” he said. — VDS, GMA News