Economic managers welcome upgrade
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Wed, 01 May 2019 16:24:35 +0000
THE Philippines’ economic managers have welcomed S&P Global Ratings’ upgrade on its investment-grade credit rating from “BBB+” to “BBB,” which they credited to“bold reforms and sound economic policies.”
In a statement from the Investor Relations Office of the Bangko Sentral ng Pilipinas (BSP) on Tuesday night, Finance Secretary Carlos Dominguez 3rd was quoted as saying the upgrade “is an undeniable tribute to President [Rodrigo] Duterte’s unwavering commitment to bold reforms and sound economic policies, as embodied in the 10-point Socioeconomic Agenda of the administration and his strong political will to get these tough initiatives done at the soonest.”
“To his credit, President Duterte has transcended all the political chatter and stayed focused on pursuing policy initiatives, such as tax reform, trade liberalization and infrastructure modernization, that are necessary to sustain the growth momentum, attract investments and ensure financial inclusion for all Filipinos on his watch,” he added.
National Treasurer Rosalia de Leon considered the upgrade as recognition of the country’s sound policies on liability management.
“We have kept our debt in check, even as we invest more on infrastructure and social services,” de Leon said.
“We are committed to fiscal discipline, and this makes the Philippines a truly creditworthy sovereign in the eyes of the international financial community,” she added.
The upgraded rating is two notches above the minimum investment grade rating. It is also the highest the country has secured since 2013, when it was first assigned an investment grade rating by another credit rater, Fitch Ratings.
In a statement, S&P said budget deficits would lead to a gradual decline in the government’s net indebtedness, which would fall from an estimated 27.7 percent of gross domestic product (GDP) in 2018 to about 25.9 percent by 2022.
It forecasts general government deficits to remain roughly stable through 2022 with a shortfall of 2.4 percent of GDP from an average deficit of just 0.3 percent a year from 2014 to 2017.
Bangko Sentral Governor Benjamin Diokno said S&P’s favorable rating action was a recognition of the country’s sound economic management, prudent monetary policy and strong financial sector supervision.
“Over the years, the BSP has remained committed to its price and financial stability mandates, providing an enabling environment for the economy to flourish. Armed with a new charter that strengthens its ability to carry out its primary mandate of price stability and supervise the banking sector, the BSP will continue to lend support to the economic development goals of the country,” he added.
S&P has regarded the central bank’s ability to support sustainable economic growth while attenuating economic or financial shocks to be broadly neutral to its ratings.
“This reflects the central bank’s sound record in keeping inflation low and its history of independence,” the debt watcher said.
Upgrade a peso boost
Also on Tuesday, an economist from ING Bank Manila said the upgrade was a positive development for the local currency.
“The upgrade limits the reliance on interest rate differentials to bolster the PHP (Philippine peso), as foreign flows are seen to continue even with less attractive carry trade opportunities,” ING Bank Manila senior economist Nicholas Antonio Mapa said in a comment.
It “also shows that ratings agencies view the external position of the Philippines as favorable with its more than adequate level of gross international reserves (GIR) and the proverbial ‘aces up our sleeves’ in OF (overseas Filipinos) remittances and BPO (business process outsourcing) receipts, two sources of FX (foreign exchange) akin to the Philippine dynamic,” he added.
The economist, in a recent comment, tagged these structural inflows as the major driver of the country’s credit ratings.
He noted that remittance flows remained healthy, having hit P2.557 billion in February and bringing the year-to-date tally to $5.302 billion, a 2.3-percent increase from $5.182 billion in the comparable 2017 period.
Mapa also highlighted the rapid expansion of the BPO industry, which “has delivered yet another ace up the Philippine external sleeve,” given receipts totaling $10.4billion in 2018, 21 percent higher than the year-before amount.
By virtue of the remittances and BPO receipts boon, the country can expect to always receive as much as $2.58 billion a month, he said.
This will build up the country’s GIR, which the Philippines can utilize in times of distress to stabilize excessive demand for the dollar, the ING economist added.
Latest central bank data showed that the peso averaged P52.11:$1 as of April 26, appreciating slightly against the US dollar by 0.14 percent from the P52.41:$1 average in March.
Dollar reserves now stand at $83.61 billion as of end-March.
Lastly, Mapa stressed the importance of sustaining the country’s economic growth, which has been the key consideration behind the S&P upgrade.
“Government officials must look to safeguard this growth momentum going forward,” he said.
The Philippine economy recorded a full-year GDP growth rate of 6.2 percent in 2018, lower than 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.
Market lift
The Philippine Stock Exchange also welcomed the upgrade, saying it expected share prices and trading volume to be lifted because of it.
In a separate statement also on Tuesday night, PSE President Ramon Monzon said the new rating “bodes well for the Philippines, as this move affirms the solid economic fundamentals of the country.”
“We expect investor optimism, particularly from institutional funds, to push share prices and trading volumes higher,” he added.
According to him, the bourse is also keen on seeing the upgrade’s impact on the country’s economy and fiscal position in the medium to long term.
Despite upgrading its credit rating, S&P trimmed on Monday its growth forecast for the country from 6.4 percent to 6.3 percent, citing higher interest rates and delayed approval of the 2019 national budget as having dampened growth.
The projection was higher than last year’s actual growth of 6.2 percent and falls near the lower end of the government’s downwardly revised 6.0-7.0 percent target.
WITH ANGELICA BALLESTEROS
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