Philippines’ Pursuit of ‘A’ Credit Ratings Receives Warm Reception

The Philippine government’s pursuit of Single “A” credit ratings by 2022 or earlier has elicited positive sentiment from market players. To realize the goal of hitting “A” level credit ratings, the Department of Finance (DOF) and the Bangko Sentral ng Pilipinas (BSP) will organize an inter-agency committee that will draft a roadmap on strategies.

The goal to push the country’s credit ratings toward the “A” scale — formally called, “The Road to Single ‘A’ Credit Ratings” — reflects the government’s intention to keep its fiscal house in order and to maintain strong macroeconomic fundamentals in the years ahead.

Following the move of international debt watcher S&P Global in April to raise the Philippines’ credit rating by a notch to BBB+ with a “stable” outlook, the goal is seen within arm’s length. The new rating is just a step away from the minimum rating within “A” territory.

Euben Paracuelles, Chief ASEAN Economist at Nomura, said in an email interview that creating an inter-agency committee in pursuit of “A” level rating “is a good start because it implies more coordination ahead, which is a key ingredient for success.”

Paracuelles recognized the prudence of the government’s tax reform initiatives, and said implementation of the additional reform proposals — on top of the first package implemented in January 2018 which cut personal income tax rates but raised excise tax on automobiles and oil, among other provisions — will boost the country’s chances of securing higher credit ratings.

Other tax reform proposals that the DOF is pushing in Congress include: a bill cutting corporate income tax rates and rationalizing fiscal incentives; a bill seeking to raise alcohol and cigarette taxes to fund the Universal Healthcare program; and initiatives to reform the estate tax and real property tax structures, among others.

“Passing fiscal reforms remains crucial in helping fund an ambitious infrastructure program while at the same time maintaining fiscal sustainability. So in a way, the roadmap has already been laid out for the authorities,” Paracuelles said.

The Philippines prides itself with solid economic growth, which the government intends to sustain and make more inclusive through game-changing infrastructure and policy reforms.

Paracuelles said it pays for the government to sustain existing efforts to further enhance the quality of economic growth.

“Policymakers need to continue building resilience against external shocks and raising further the quality of growth and become more investment-led,” he said, citing the importance of sustaining efforts toward infrastructure development.

Meantime, Jonathan L. Ravelas, First Vice President and Chief Market Strategist of BDO Unibank, Inc., said in a separate e-mail interview that the government’s initiative to bag “A” level credit ratings is news that the market welcomes.

Ravelas recognized the healthy fiscal position of the government, which allows it to invest more on the economy and which serves as good momentum for its quest for better ratings amid challenges, including trade tensions between other countries.

Raveles added that, “Prolonged US-China trade war will pressure the government to focus on the domestic economy by maintaining a more accommodative monetary policy combined with an expansionary fiscal program. Luckily for the Philippines, the government’s low debt burden provides fiscal space to spend more on infrastructure projects.”