EXPLAINER: What's in it for us if the PH has good credit ratings?
MANILA, Philippines – The Philippines scored its highest credit rating in history from Standard and Poor's Global Ratings (S&P), now at BBB+ and a notch away from the A category.
S&P said it upgraded the country's credit rating on the back of consistent economic growth and prudent spending.
Filipinos ask: what is it for us?
What are credit ratings? S&P is one of the 3 biggest international rating agencies. The other two are Fitch Ratings and Moody's Investors Service. These companies analyze a country or borrower's financial stability, by looking into its economic, political, and social health.
S&P and Fitch follow these rankings:
"Top-notch" investment grade ratings
"Under observation" speculative grade ratings
In a nutshell, credit ratings serve as a badge of credit worthiness and reflect a country's ability to pay back its debt.
What is the Philippines' credit history? The Philippines got its first credit rating in 1993 under then-president Fidel Ramos. The BB- rating it received then was under the "speculative grade," which meant that investing in the Philippines was very risky.
The rating was then upgraded to BB+ during the later years of Ramos and the term of his successor, Joseph Estrada.
Due to various political and economic factors under the presidency of Gloria Macapagal Arroyo, the Philippines' credit rating was downgraded back to BB-.
It was during the administration of Benigno Aquino III that the country gained traction. In just 4 years, the Philippines climbed 4 notches to BBB, which is considered "top notch" or an investment grade rating. This sent a signal to investors that doing business in the country had a lot of potential, as the government proved that it can pay off loans.
In April 2019, under President Rodrigo Duterte, the country climbed to BBB+, the highest credit rating ever for the Philippines.
What made S&P lift its rating? S&P upgraded the Philippines' credit rating due to the country's "solid government fiscal accounts, low public indebtedness, and the economy's sound external settings."
The debt watcher also said it may further raise the rating over the next two years if the government makes "significant further achievements" in fiscal reforms.
What are the perks of higher ratings? With the upgrade, investors will now start lowering interest rates and returns for Philippine bonds and stocks, making financing and raising funds cheaper. Private institutions will also see lower borrowing costs overseas.
With lower borrowing costs, the government and private sector can allot money which was initially for debt interest repayments to other projects, and in turn, spark economic growth.
Moreover, a higher credit rating would attract more foreign direct investments, which would theoretically translate to more jobs and eventually, higher income.
How do we move to A? The government has a rather unlikely model to emulate in order to achieve the A rating: Miss Universe 2018 Catriona Gray.
In a press briefing, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said the Philippines must do a "Catriona swirl" as in a Miss Universe contest, to enthrall the "judges," which include debt watchers and investors.
He added that the Philippines must show off its "beautiful narrative" of economic growth so the "judges" would not just "glance" and "give us a gaze instead."
Guinigundo said the BSP, along with the Department of Finance, will organize an inter-agency committee to create a road map, which would systematize the country's pursuit of the A rating.
"Such a road map will evidence the buy-in and the commitment of key economic and infrastructure officials and agencies to get our efforts properly credited to A before 2022 to help further bring about more benefits to the economy and to our people," Guinigundo said. – Rappler.com