DOF: ‘A’ credit rating would lower borrowing costs, boost investment

A sovereign credit rating upgrade to ‘A’ would lower borrowing costs for the Philippines and increase investor confidence, as it would indicate that the risk of default is low and the repayment capacity is strong, Finance Secretary Benjamin Diokno said.

“If we have an ‘A’ credit rating, the borrowing cost of the government will, of course, decline and also the private sector’s… It would improve the lives of the people because they could borrow at lower rates,” Diokno said in his weekly press chat.

Last month, the Finance chief announced that the government is eyeing to secure an A-level credit rating from the so-called big three debt watchers: Fitch Ratings, Standard & Poor’s, and Moody’s, by the end of President Ferdinand "Bongbong" Marcos Jr.’s term. 

“With the credit rating upgrade, it will lower the borrowing cost of the government… that will provide savings for the national government,” Finance Undersecretary Zeno Abenoja said at the same briefing.

Currently, the Philippines has been assigned a rating of ‘BBB’ or good credit quality by Fitch, a notch away from the ‘A,’ or high credit quality; a ‘BBB+’ investment grade rating by S&P, meaning means it has adequate capacity to settle financial obligations; and a ‘Baa2’ rating, indicating moderate credit risk, from Moody's.

“It is important to note that we managed to maintain investor-grade ratings even during the pandemic, while other countries were downgraded,” Diokno said.

The Finance chief emphasized that an ‘A’ credit rating “would affirm the Philippines’ creditworthiness and would serve as a strong signal to local and international business and financial communities that the country is conducive to long-term investments.”

“In turn, this will increase investment and will eventually help us achieve our long-term economic plans,” Diokno said.

Marcos’ chief economic manager said the Inter-Agency Committee (IAC) on the Road to A Credit Rating Agenda was organized by the DOF and the Bangko Sentral ng Pilipinas in 2019 for the pursuit of achieving an A-level rating.

“It [IAC] aims to effectively coordinate the efforts of member agencies to develop, execute, and monitor the implementation of the Road to A Roadmap. Moreover, the IAC aims to enhance engagements with analysts and investors; coordinate engagements with credit rating agencies and third-party raters; and increase the Philippines’ visibility through traditional and technology-based platforms,” Diokno said.

The Finance chief said that the IAC has a “three-pronged strategy” that focuses on: “one, achieving solid economic growth; two, prudent fiscal management; and three, strong governance standards and institutions.”

“On growth, the country must raise living standards at par with other middle-income economies; pursue sound macro management to ensure sustained economic growth without imbalances; address infrastructure gaps by accelerating high- quality and high-impact investment spending; exercise prudence in incurring deficits, maintain sufficient buffers against external headwinds; and strike an optimal balance between financial sector stability and productive utilization of liquidity,” Diokno said.

On fiscal management, the Cabinet official said that the government must sustain tax reform while maintaining growth-oriented fiscal operations and balance risk-and-return trade-offs through rigorous debt management and diversification.

“And lastly, on governance standards and institutions, the government will continue to: create a vigorous investment environment that would stimulate investment inflows; safeguard central bank independence in crafting monetary policy geared towards price stability; pursue structural reforms that improve institutions and social services; and engage in global initiatives to mitigate the perennial damages brought by climate change,” the Finance chief said.

Diokno reiterated that “our ultimate goal is to get an A rating before the end of the President’s term.”

“We’re fully aware that this is not going to be a walk in the park. But we are committed to work unceasingly to achieve our lofty goal,” he said. — BM, GMA Integrated News