MANILA, Philippines - Moody's Investors Service's recent upgrade of the country's credit rating has reduced the government's borrowing costs by at least 1%.

This was according to Finance Undersecretary Rosalia de Leon who was responding to senators' questions on the impact of the favorable rating upgrades at a budget hearing on Monday, November 5.

“Effectively, it’s at least a 1% reduction in the nominal amount,” de Leon said.

De Leon told the lawmakers that the indicative borrowing cost of the sovereign bonds that the government has issued to fallen to 4.5% from the previous 6% level.

To illustrate, de Leon said that if the government borrowed P700 billion, it could save about P7 billion in interest payments because of the credit rating upgrade.

The government issues Republic of the Philippines (RoP) bonds that are sold to international investors to plug the government's budget shortfall.

Impact to local businessmen

The rating upgrade would also trickle down to ordinary borrowers as interest rates on housing, auto, and other loans also go down, de Leon added.

She explained that reductions in the borrowing cost of the national government -- the entity whose debt issuances are considered the safest among borrowers in the country -- are the basis for the trajectory of the cost of funds borrowed by the private sector.

“If they borrow abroad, it will be benchmarked on the government’s [borrowing rates],” de Leon added.

Bureau of Internal Revenue Commissioner Kim Henares, who was also at the senate hearing, said the impact of the rating upgrade would also be felt by individual borrowers.

Banks and other lending institutions normally price their loans using the government's RoP bond yield as benchmark.

Moody’s known to be the “least generous” among the 3 major international credit agencies – Moody’s, Standard & Poor’s and Fitch – last week upgraded the country’s foreign and local bond ratings from Ba2 to Ba1.

The upgrade means all 3 major agencies have rated the Philippines just one level below investment grade. - Rappler.com