Japanese debt watcher R&I affirms PHL’s BBB+ rating, ‘stable’ outlook

Japanese debt watcher Rating and Investment Information Inc. (R&I) has kept the Philippines’ investment grade credit rating of BBB+ with a “stable” outlook, a vote of confidence on the economy’s recovery from the COVID-19 pandemic and its growth prospects over the medium term.

“The Philippines’ economy suffered a severe contraction due to the COVID-19 pandemic in 2020 but is expected to recover primarily through aggressive public investment, which had driven the economy in the past several years. Fiscal and monetary policies will boost growth for some time,” R&I said in a statement released late Thursday.

BBB+ is a notch away from the minimum rating within the A-territory ratings, while a “stable” outlook indicates absence of factors that may cause the rating to change over the short term.

R&I also said that the country’s fiscal and monetary policies will both boost growth for some time.

“With the government committed to maintaining fiscal discipline, the debt ratio will be back on a downward trajectory in the near future, in R&I's view,” it said.

“In parallel with crisis responses, the government has steadily accomplished comprehensive tax reforms and various regulatory reforms,” the debt watcher said.

In response to the latest rating decision by R&I, Finance Secretary Carlos Dominguez said that in keeping its “BBB+” credit rating with a “stable” outlook for the Philippines, R&I has “apparently taken notice that although the global fight against the pandemic has proven to be a costly one, the country’s strong macroeconomic fundamentals ahead of the pandemic have enabled the government to accelerate spending on urgent and necessary programs to save lives and keep the economy afloat.”

“With a manageable debt profile, a steady revenue stream brought about by tax reform, and the continued practice of fiscal prudence, the government is confident it will not run out of resources in waging the protracted battle against the COVID-19 crisis,” Dominguez said.

The Finance chief said that as R&I acknowledged, the government is committed to pursue the remaining reforms in its socioeconomic agenda even if it remains preoccupied with the challenges of the pandemic—and this resolve will let the Philippines return soon enough to its pre-pandemic path of high and inclusive growth.

Dominguez said that the Duterte administration’s commitment to economic reform and recovery has been proven by, among others, the enactment of stimulus measures like Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Financial Institutions Strategic Transfer (FIST), as well as its push for investor-friendly bills pending in the Congress, such as the proposed amendments to the Public Service Act (PSA), Retail Trade Liberalization Act (RTLA), and Foreign Investments Act (FIA).

For his part, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno also welcomed the rating decision by R&I, “The Philippines once again earned an important vote of confidence on its ability to bounce back from the COVID-19 crisis, with R&I's affirmation of the country's BBB+ rating with a ‘stable’ outlook.”

“With the recent surge in COVID-19 cases, the tail-end of the crisis is proving to be extra challenging. Nevertheless, we do not see a permanent dent on our macroeconomic fundamentals, and we can head back to our growth path post-COVID,” Diokno said.

“Inflation, although seen to slightly breach the target range this year, will ease to within the 2.0% to 4.0% target band next year. Moreover, the banking sector, although not totally unscathed, has kept the impact of the crisis manageable and remains well capable of helping support economic recovery and growth through credit,” the central bank chief said.

“The favorable inflation outlook and stable banking system, plus the speed of financial digitalization happening in the economy, are good reasons to be confident about the Philippines' medium and long-term growth prospects,” he added.

R&I, meanwhile, positively viewed the increase in government spending and budget deficit in light of the COVID-19 pandemic, noting that the country’s fiscal situation remains manageable.

Compared with the pre-pandemic fiscal program of a 3% budget deficit-to-GDP ratio, the budget gap of the national government widened to 7.6% of GDP last year amid the government’s funding of COVID-response measures.

Moreover, the government’s debt is estimated to rise to 57% of GDP this year, up from 39% in 2019.

“R&I does not view this as a major issue at this juncture, because of a comfortable funding condition backed by ample domestic liquidity and the prospect of peaking-out of the debt ratio within one to two years,” R&I said.

Dominguez has earlier said that the government is keen to keep the debt ratio below 60%, thereby striking the right balance between supporting economic growth and maintaining fiscal discipline.

R&I also recognized the strength of the country’s external accounts, which serve as buffers against external shocks.

“The overall balance of payments is positive and foreign reserves are greater than external debt,” it said.  “R&I therefore considers the risk associated with the external position to be limited,” it added.—AOL, GMA News