Final upgrade seen before Aquino leaves

Finance Secretary Cesar V. Purisima hopes to contribute to the daang matuwid (straight path) campaign for continuity by seeking a new upgrade from credit watchdogs that would bring the country to two notches above investment grade.

The investment grades that the country obtained are considered political trophies of President Aquino, and a final upgrade before he leaves is expected to reflect on the votes of his anointed Liberal Party (LP) standard-bearer, former Interior Secretary Mar Roxas.

“Even with the upgrades from all the credit-rating agencies since Mr. Aquino became President, we are still underrated, based on the implied bond-ratings index based on the credit-default swaps of the country,” Purisima said.

Credit watchdog Standard’s and Poor (S&P) said in a statement that the country’s current credit rating “reflects our assessment of its strong external position, which features rising foreign-exchange reserves and a low external debt burden.”

But it noted that “these strengths are offset by the Philippines’s low income and a developing institutional and governance framework that hampers policy responsiveness.”

S&P gave the highest investment-grade rating on the country in May 2014; the Philippines received its first investment-grade rating in March 2013, when another major debt rater, Fitch Ratings, elevated the country to this level on the back of the domestic economy’s proven resiliency against negative external shocks and improvement in the government’s fiscal health.

The latest to give the country an upgrade was the South Korean-based NICE Investors Service.

NICE said it now gives the Philippines a “BBB-” rating, with “stable” outlook, from “BBB,” due to “improved government transparency, as well as enhanced environment, backed by expanded infrastructure and social overhead capitals in the form of public-private partnerships.”

Infrastructure investment by the government has risen to 5 percent of gross domestic product (GDP) this year, from about 1.8 percent in 2010.

Also, some $4.8 billion worth of infrastructure contracts have been secured under the government’s public-private partnership (PPP) initiative.

NICE considers the Philippines to be more resilient, compared to similarly rated peers in terms of shocks, such as the cooling Chinese economy and market volatility due to US interest rate normalization.

“Considering its trade structure and strong FX (foreign-exchange) liquidity, the impact of global economic uncertainties such as the slowdown of the Chinese economy and the US interest-rate hike will be manageable,” it said.

The debt rater projects a 6.3-percent output for the domestic economy over the short and medium-term.

BSP Governor Amando Tetangco Jr. said the NICE upgrade “resonates the process of economic strengthening that the Philippines has undergone over the years.”

“Contributory to this process were forward-looking monetary policy, proactive bank supervision, and prudent external accounts management, which have played crucial roles in promoting a stable inflation environment and a strong financial system,” he said.

Also, Purisima attributed the string upgrades received by the country to “virtuous cycles resulting from dogged discipline even when political headwinds seem too strong.”

He said the “expanded fiscal space has opened up a Pandora’s box of opportunities in infrastructure, allowing us to play a fast game of catchup with our neighbors.”

He added: “With increased transparency, we have empowered citizens who participate in the process of governance, and who—having known the gains reforms can bring—will refuse to roll back progress.”

Investor Relations Office (IRO) Executive Director Editha L. Martin said improvement in the country’s credit ratings “provided concrete benefits for the economy, including improved business confidence and reduced borrowing cost for the government.”

She explained that the lower borrowing cost resulted in a similar drop in commercial lending rates, thus, boosting consumption and investments.

“Having reaped the gains of investment-grade sovereign-credit ratings, there should be no room for the economy to slide back. The Filipino people, as it is incumbent upon them, are expected to demand from our leaders the kind of governance that will ensure that the economic transformation of the Philippines over the last half decade transcends changes in political settings,” she added. LUIS LEONCIO