S&P revises ratings outlook on PH from Stable to Positive

“The positive outlook reflects our view that improvements to the Philippines’ policymaking settings could support a track record of more sustainable public finances and balanced growth over the next 24 months,” it said in a statement issued Thursday night. (Photo: Gert Mewes/Flickr)

MANILA — Debt rater S&P Global Ratings has revised to Positive from Stable its ratings outlook on the Philippines after citing the country’s continued strong external position and improving policy-making, which led to sustained improvement of its fiscal position and domestic growth, among others.

It currently gives the country’s long-term sovereign credit rating an investment grade of ‘BBB’ while short-term sovereign rating is at ‘A-2’.

“The positive outlook reflects our view that improvements to the Philippines’ policymaking settings could support a track record of more sustainable public finances and balanced growth over the next 24 months,” it said in a statement issued Thursday night.

The credit rater explained that the Duterte administration “is enacting increasingly effective fiscal policies marked by improvements to the quality of expenditures, still-limited fiscal deficits, and low levels of general government indebtedness.”

The current government “broadly retained” the Aquino administration’s economic development policies and even “pursued more aggressive expenditure plans.”

S&P forecasts increase of general government deficit to around 2.3 percent of gross domestic product (GPD) by 2021 against the 0.3 percent from 2014-2017 but noted that this “will lead to a relatively stable net general government indebtedness position, averaging 27.2 percent of GDP from 2018-2021.

These moves are on back of the continued expansion of the economy, it said.

The credit rater said the country’s institutional capacity “has started to improve” and this, it noted “can be seen in its increasingly sustainable public finances.”

“Strong economic growth could continue over the forecast period if investment picks up speed,” it said, but pointed out that the country’s low level of per capita income continues to be a constraint.

Sustained robustness of the country’s external positions continues to buoy the country’s credit worthiness.

While the country’s current account is expected to post small deficit until 2021 in line with the strong growth of imports a required by the expanding economy, particularly to meet the requirements of the expansive infrastructure program, S&P said this gap “is characteristic of positive trends in the economy.”

It, however, warned that this “higher-than-expected current account deficit would likely indicate that the economy is at risk of overheating.”

Meanwhile, the credit rater remains optimistic on the country’s banking system given its primarily deposit-funded nature, limited exposure to global markets and strong oversight by the Bangko Sentral ng Pilipinas (BSP).

It considers the central bank’s ability to support continued domestic expansion while reducing economic or financial shocks as “neutral” to the ratings.

“We anticipate that the BSP’s new monetary policy measures will improve the effectiveness of monetary policy transmission, and note that a revised BSP charter that include added protection for the bank’s officials could further strengthen independence,” it said.

“Likewise, we consider that a deeper and more diversified financial and capital market would further improve the effectiveness of policy transmission and facilitate improved credit metrics,” it added.

BSP Governor Nestor Espenilla Jr., in a statement, dubbed S&P’s decision to revise its outlook on the Philippines’ credit rating as well as Japan Credit Rating Agency’s (JCRA) latest decision to keep its ‘BBB+’ rating with Stable outlook on the country as “a welcome pat on the back.”

“The BSP is committed to its price and financial stability mandates, which have provided an environment conducive for economic growth and stability over the years,” he said.

“At the same time, the BSP is keen on helping push the economy toward the next stage of development through financial sector reforms, which are vital for accelerating growth and making it more inclusive,” he added.

Finance Secretary Carlos Dominguez III, in a Viber message to journalists, said “we appreciate this affirmation of the effectivity of the Duterte administration’s economic agenda.”

“It’s a result of good teamwork within the administration and with the Legislature, for the benefit of the entire nation,” he added.