DESPITE recent cuts in its growth projection and reimposition of lockdowns, international credit watcher S&P Global Ratings announced that it is affirming the country’s current ratings with a stable outlook.
In a statement on Thursday afternoon, S&P said it has affirmed the Philippines’s investment grade credit rating of “BBB+” with a “stable” outlook.
A stable outlook means the current rating is likely to hold in the short-term barring any extreme and unforeseen development.
S&P also forecasted that the Philippine economy will grow by 7.9 percent this year, significantly above the ceiling of the government’s revised growth target for the year at 6 to 7 percent.
“[We] believe the Philippines will continue to have good economic recovery prospects once the Covid-19 pandemic is contained, and that the government’s fiscal performance will strengthen accordingly,” S&P said in a report.
“Despite the unprecedented economic shock, the Philippine economy remains among the fastest growing in the world on a 10-year weighted average per-capita basis. The country has a relatively diversified economy with a strong track record of high and stable growth—a reflection of its supportive policy dynamics and improving investment climate,” it added.
One of the major strengths to their rating, S&P said, is the strong external position of the country, particularly evidenced by its hefty gross international reserves (GIR).
“A key rating strength for the Philippines is the country’s external position; the peso’s strength and the Philippines’s rising foreign-exchange reserves in the current economic and health crisis are testaments to its external resilience,” S&P said.
The debt watcher also cited the Philippines’s strong and highly liquid banking sector in the midst of an economic crisis.
“Philippine banks benefit from being mainly deposit-funded, with high liquidity and limited linkages to global markets. The strengthened oversight of the financial sector by Bangko Sentral ng Pilipinas [BSP], combined with modest growth in private sector debt and real-estate prices, has also contributed to improved system stability in recent years,” it said.
Earlier this month, the BSP reported that GIR hit $107.25 billion in April this year, up $2.77 billion from the previous month’s level.
The country’s GIR is the level of foreign-exchange holdings being managed by the Central Bank during a given period. The GIR is a crucial component of the economy as it is often used to manage the country’s foreign-exchange rate against excess volatility.
The Philippines’s GIR has been rising steadily for the whole of 2020 amid the pandemic, as the local currency remained strong against the US dollar.
At this level, the BSP said the buffer is equivalent to 12.3 months’ worth of imports of goods and payments of services and primary income. It is also about 7.5 times the country’s short-term external debt based on original maturity and 5.2 times based on residual maturity.
‘Vote of confidence’ cheers DOF, BSP
In separate statements, the Department of Finance and the BSP welcomed S&P’s affirmation of the country’s ratings, calling it a vote of confidence that the country continued to have favorable prospects despite the Covid-19 challenges.
“The Philippines, along with the rest of the world, has suffered from the shocks of the pandemic-driven health and economic crises. But solid financial buffers and prudent fiscal management have placed the Philippines in a relatively strong position to generate the needed funds for Covid-19 response without touching off a worrisome debt situation down the road,” Finance Secretary Carlos Dominguez III said.
“Even as we significantly increase public spending to contain the spread of the virus, save lives, and induce economic recovery, we have managed to keep our debt metrics within manageable levels. S&P’s affirmation of its ‘BBB+’ rating supports our optimism that once this health emergency is contained, we will be able to bring back our deficit and debt ratios, as well as our growth momentum to pre-pandemic levels,” he added.
BSP Governor Benjamin Diokno said, meanwhile: “The move of S&P to keep the country’s BBB+ credit rating echoes our view that the impact of the Covid-19 crisis on the economy will be transitory and that the Philippines continues to enjoy bright medium-term growth prospects.”
He added: “Prior to the pandemic, the Philippines was already on the verge of becoming an upper middle-income economy and had already posted significant strides in poverty reduction. We expect to go back to that trajectory soon, as vaccination rollout continues and as we push for vital economic reforms.”
On BSP’s part, Diokno said, “we will continue to promote financial digitalization, which will aid faster economic recovery and growth, and which will onboard more Filipinos to the formal sector thereby boosting incomes. We will likewise continue to promote Islamic banking for a more inclusive financial system,” he further said.
Image courtesy of Nonie Reyes
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