The move of international credit watchdog Moody’s Investors Service to grant investment-grade status to the Philippines, announced days before President Aquino traveled to Bali to attend the Asia-Pacific Economic Cooperation summit, has cleared any remaining doubt on the economy’s financial health. All three major global credit-rating agencies—the others being Standard & Poor’s and Fitch Ratings—now view the Philippines as credit-worthy.
Moody’s cited the sustainability of the Philippines’ robust economic growth, the ongoing fiscal and debt consolidation, political stability, and improved governance as reasons for the upgrade. The rating also came with a positive outlook for the country: Even during the recent volatility in emerging markets, it showed a relative lack of vulnerability to external financial shocks, such as those arising from the anticipated tapering of the US Federal Reserve’s easy-money policy.
The ratings agency likewise revised its outlook for the Philippines’ government debt rating to positive, indicating the possibility of another upgrade in the next 12-18 months. It said the Philippines’ “economic performance has entered a structural shift to higher growth, accompanied by low inflation,” and cited as proof the country’s high gross domestic product (GDP) growth of 6.8 percent in 2012, which accelerated to 7.6 percent in the first half of 2013.
What does the rating upgrade mean? Theoretically, it implies that the Philippines is capable of meeting its obligations on time, with very minimal risk of skipping debt payments. As foreign lenders consider the country’s debt less risky because of the high rating, the government will have greater access to cheaper credit. Lower borrowing costs for the government, in turn, may mean more resources for it to spend on, hopefully, basic services for the people. Since yields on government debt paper are also used by local banks to price their loans to the local borrowers, this means households can expect lower interest rates for loans needed to acquire or build houses or buy cars. Businesses will also have access to cheaper credit, allowing them to expand their enterprises more easily, consequently leading to the creation of more jobs.
News of Moody’s action was greeted with the usual fanfare. Finance Secretary Cesar Purisima said the upgrade was the result of sound economic policies and the public sector’s push toward good governance. Said Purisima in a statement: “Good governance is truly good economics.” Added Budget Secretary Florencio Abad: “The upgrade by Moody’s completes the investment grades we aspired for. We can expect improvements in terms of foreign investments and tourism.”
But more than the rhetoric from government officials, there are nagging issues that urgently need to be addressed. At the top of the list is the oft-repeated but hardly explained “inclusive growth,” or should we say the absence of it. The robust economic growth in the past years has hardly made a dent on poverty incidence. The percentage of Filipinos living below the poverty line remained practically the same between 2006 and 2012. In a report, the National Statistical Coordination Board said an estimated 28 percent of Filipino households were believed living in poverty in the first semester of 2012—nearly unchanged from the same period in 2009 (28.6 percent) and in 2006 (28.8 percent).
There is no doubt that President Aquino has done much to improve the economy as a whole since taking over from the past regime. However, more effort and sound judgment are required to allow the fruits of economic development to finally benefit the masses. His administration will not achieve this if it retains the corruption-tainted pork barrel system and such questionable schemes as the Disbursement Acceleration Program. It also has to address a number of mundane issues that continue to afflict the ordinary folk, like the traffic nightmare in Metro Manila which seems to get worse by the day, the sorry lack of efficient public transport, the delays in the flagship Public Private Partnership program, inadequate basic services, and the like. Most important, the administration must make sure that the plunder of taxpayer money is stopped, and those found guilty of the crime are justly punished.
Moody’s action gives all of us in the public and private sectors the opportunity to show the international community that the Philippines deserves to be branded investment-grade. Let us not blow this rare chance.