MANILA, Philippines – Moody’s Investors Service raised the Philippines’ credit rating by one notch on Thursday, December 11, in a further sign of the country’s economic transformation.
The Southeast Asian nation, once considered the region’s economic laggard, was upgraded to “Baa2” from its previous level of “Baa3,” the lowest of Moody’s investment-grade ranks.
The country has a “stable” outlook, a statement from the credit rating agency said.
The move comes after Moody’s, Fitch, and Standard & Poor’s (S&P) all raised the Philippines to investment-grade levels in 2013, indicating a lower risk to investors.
In 2013, the Philippines secured investment grades for the first time from the 3 major international credit rating agencies.
In May 2014, S&P further upgraded the Philippines’ credit rating by a notch above the minimum investment grade.
“The key drivers of the decision are ongoing debt reduction, aided by improvements in fiscal management, [and] continued favorable prospects for strong economic growth,” Moody’s said.
The Philippines is also enjoying only “limited vulnerability to the common risks currently affecting emerging markets,” the agency added.
Moody’s praised the government’s fiscal management, saying this has lowered the Philippines’ debt burden while keeping the fiscal deficit low.
“The resilience of private investment portends the sustainability of higher overall growth relative to peers over the next two years,” Moody’s added.
It cited the economic recovery of the United States, the Philippines’ main economic partner, as well as lower commodity prices, as other signs of a strong outlook.
The Philippines has also shown itself more capable of standing up to “global pressures” affecting other emerging markets, such as the fall in oil prices and the slowing of China’s growth, the agency said.
Good governance is good economics
The latest upgrade is the 21st positive credit rating action the Philippines received from different agencies around the world since the Aquino administration came into office. It occurs at a time when credit rating agencies have been relatively conservative with awarding upgrades, Presidential Spokesperson Edwin Lacierda said in a statement.
Lacierda added that the Aquino administration’s thrust of good governance is good economics, reflected in this latest Moody’s upgrade.
“With these upgrades comes increased fiscal flexibility, and the Filipino people can be assured that our administration will continue channeling these gains toward the benefit of the broader spectrum of society, as we continue to tread the straight path toward a Philippines that is more prosperous, progressive, and inclusive,” Lacierda said.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr also welcomed the credit rating upgrade, which came about even as the global economy remains fragile.
The central bank governor added that the latest credit rating upgrade is a recognition of their efforts to keep the Philippine economy resilient. Contributing to such resiliency are the country’s comfortable external liquidity, strong financial system, and a favorable inflationary environment, Tetangco added.
“Moving forward, the BSP will continue to implement prudent monetary policy and sound regulatory standards to safeguard its price and financial stability objectives and to help ensure the continued resilience of the Philippine economy,” Tetangco said in a statement.
BSP also announced Thursday that key policy rates are unchanged.
“The monetary board’s decision is based on its assessment that the inflation environment continues to be more manageable,” Tetangco said.
Finance Secretary Cesar Purisima said the decision of Moody’s to further raise the country’s credit rating “is an acknowledgment of the sound management of the economy.”
“There should be no turning back as far as good governance is concerned; the only direction we should see for the Philippine economy is forward,” the finance secretary added.
Maintaining the sustained gains in revenue collection is a must to keep the investment grade rating of the country at its best, Purisima said. He added that from 12.1% in 2010, the country’s tax effort has improved to 14.08% in the first 3 quarters of 2014.
Investor Relations Office (IRO) executive editor Editha Martin, meanwhile, said the latest upgrade is a testament to the importance of governance reforms the country has implemented over the years.
“The good governance agenda has brought significant improvement in the country’s competitiveness and credit worthiness over the past 4 years. Filipinos, therefore, will have to be vigilant to ensure that the commitment to good governance remains intact,” Martin said.
Despite the upgrade for the Philippines, Moody’s still cautioned that the government’s targets of 6.5% to 7.5% economic growth for this year might be too hard to achieve.
The Philippines recently shed its image as one of the weakest economies in Southeast Asia, posting 7.2% growth last year.
The gross domestic product (GDP) performance of the country for the 3rd quarter slowed down to 5.3%.
But natural disasters – including a spate of killer typhoons – have slowed growth in the first 9 months of 2014, and a quarter of the population still live below the poverty line, government figures show. – with reports from Agence France-Presse/Rappler.com