Japan grants PH investment grade

The Japan Credit Rating Agency Ltd. follows similar upgrades debt watchers Fitch and Standard & Poor's have recently granted the Philippines

MANILA, Philippines – The Japan Credit Rating Agency Ltd. (JCRA) has granted the Philippines an investment grade credit rating following the similar upgrades the country received from Fitch Ratings and Standard & Poor’s.

(VIEW OUR INFOGRAPHIC: What a credit rating upgrade means for Filipinos)

In a statement on Tuesday, May 7, the JCRA said they are confident that the Philippine economy will sustain an economic growth of around 6% in the medium term on the back of strong domestic demand. 

JCRA upgraded the Philippines’ credit rating to BBB from BBB- with a stable outlook. 

“It’s fiscal position will continue to improve moderately as the Aquino government is committed to hold the fiscal deficit to GDP (Gross Domestic Product) ratio within its 2% target from 2013 onward through higher taxes on tobacco and alcohol and enhanced tax collection efficiency,” JCRA said. 

JCRA said Overseas Filipino Worker’s remittances will continue to be a major driving force for the Philippine economy in 2013. This, coupled by Business Process Outsourcing (BPO) earnings, are expected to also boost the country’s current account surplus.

The credit rating agency said the country’s current account surplus-to-GDP ratio stood at 2.8% as of end 2012. JCRA said the ratio is expected to decline in the medium term but remain in suplus. 

“The Philippines has managed to register a current account surplus by offsetting its trade deficit with surpluses in the transfer and services accounts brought mainly by solid gains in OFW remittances and BPO revenues,” it said. 

Infrastructure needed

Despite the rosy economic outlook, JCRA said the Philippines has a lot of work to do, particularly in addressing its infrastructure constraints. It said that upgrading infrastructure will be a way for improve the investment and business environment of the country. 

It added that because of this and the uncertainty cast by the crisis in Europe on the global economy, JCRA will “closely monitor” the developments and the impact of external risks on the Philippine economy.

JCRA also said there is a need to further deepen and diversify the financial sector given that commercial banks’ loans/GDP ratio is slightly above 30%. “(This will) promote capital formation through increased equipment investment.”

The government of Japan is the country’s largest provider of Official Development Assistance (ODA) loans and grants. Loans extended by the Japan International Cooperation (JICA) account for an average of more than 30% of the country’s ODA loan portfolio every year. 

In 2011, the government said JICA extended loans worth $2.738 billion or 31.8% of the country’s total ODA loan portfolio. In that year, the Philippines booked a total of $8.599 billion-worth of ODA loans. – Rappler.com