JCR raises outlook for PH to ‘positive’

Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 26 Apr 2019 16:28:54 +0000

THE Japan Credit Rating Agency Ltd. (JCR) revised its investment grade credit rating outlook for the Philippines to “positive,” which means the country is now only a step away from securing another upgrade.

“JCR has left the ratings unchanged in view of the need to assess progress on infrastructure development and the CTRP, but has changed the rating outlook from Stable to Positive. JCR will monitor future developments and reflect the outcome on the ratings,” the debt watcher said in a recent statement.

The Philippines’ BBB+ ratings, it added, mainly reflect the country’s high and sustainable economic growth performance.

According to the agency, this performance is underpinned by solid domestic demand, resilience to external shocks supported by an external debt kept low relative to gross domestic product (GDP) and the accumulation of foreign exchange reserves, and the government’s sound fiscal position.

JCR also expects the Philippines to grow at an annual rate of between 6 percent and 7 percent in the future on solid domestic demand.

“Economic growth is expected to accelerate in the medium to long term as supply constraints will be mitigated by infrastructure development,” it said.

Infrastructure development, it added, has accelerated under the Duterte administration amid expanding expenditures based on its Public Investment Program and improved budget execution rate brought by budget reforms.

The Philippine economy recorded a full-year GDP growth rate of 6.2 percent in 2018, lower than the government’s revised target of 6.5 to 6.9 percent. This is also lower than the 6.7 percent and 6.9 percent recorded in 2017 and 2016, respectively, largely due to the spikes in inflation rates in 2018.

JCR also said the country’s fiscal deficit would be maintained at manageable levels and the government debt as a percentage of GDP would keep declining moderately in the future.

Last year’s P558.26-billion budget shortfall was equivalent to 3.2 percent of GDP, surpassing the 3-percent ceiling set by the government.

Government debt, meanwhile, was equivalent to 41.9 percent of GDP last year, lower than the 42.1 percent posted a year ago.

JCR added that the Philippines’ low external debt balance and foreign currency reserves “demonstrate that the country stays highly resilient to external shocks.”

It said the external debt balance had been kept at a lower 20 percent level in GDP terms, while foreign currency reserves at end-March 2019 were equivalent to 7.4 months’ worth of goods and services imports and 5.0 times the short-term external debt.

‘Aggressive yet prudent economic policy’

In a statement on Friday, the Investor Relations Office (IRO) of the Bangko Sentral ng Pilipinas (BSP) said Finance Secretary Carlos Dominguez 3rd and BSP Governor Benjamin Diokno both welcomed the JCR’s positive outlook.

Dominguez was quoted as to have cited the outlook as “recognition of the Duterte administration’s aggressive yet prudent economic policy of spending big on infrastructure modernization while maintaining fiscal discipline.”

For his part, Diokno said “the Philippines’ robust economic growth is sustainable over the long haul, in part because of the BSP’s commitment to maintain price stability and the soundness of the banking and financial system.”

“The BSP will continue to provide an enabling environment for sustainable, robust, and more inclusive economic growth by staying committed to its price and financial stability mandates,” he added.

In its report, JCR highlighted the banking system’s low exposure to bad debts, with the non-performing loans ratio settling at 1.8 percent, and sufficient capitalization, with the capital adequacy ratio at 15 percent, last year.

JCR’s BBB+ rating with positive outlook is just one notch away from a single-A credit rating, according to IRO.

It said a single A credit rating would place the Philippines on the radar screen of even more portfolio investors, given that some institutional investors have a policy of investing only in bonds issued by A-rated sovereigns or corporate entities.

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