Welcome upgrade

Nothing could be more pleasing to the ears of the Duterte administration’s economic team than last week’s credit-rating upgrade from Standard & Poor’s.

The international debt watcher raised the credit rating of the Philippines to “BBB+ Stable,” the highest ever attained by the country and just a notch away from the coveted “A” rating territory.

Such rating upgrade is a vote of confidence in the strength of the Philippine economy and its enhanced ability to repay its obligations. The Philippines received its first investment grade rating in 2013 from another international debt watcher, Fitch Ratings.

As S&P observed, the Philippines has above-average economic growth, a healthy external position and sustainable public finance, adding that its stable outlook on the rating “reflects
our view that the Philippine economy will maintain its momentum over the medium term, in combination with contained fiscal deficits and stable public indebtedness.”

The economy is, without question, on a high-growth trajectory, expanding by more than 6 percent for the past 15 quarters despite external challenges such as a slowdown in the economies
of its major trading partners, the brewing trade dispute between the United States and China and volatile crude oil prices.

This rating upgrade has the effect of putting downward pressure on borrowing costs of both the public and private sectors when raising funds from overseas.

This should augur well for the Duterte administration’s plans to issue bonds in Japan and China to raise cheap funds for its infrastructure program. Lower interest rates on foreign loans, in turn, can lead to lower pass-on rates to domestic borrowers.

S&P recognized the implementation of important policy and infrastructure reforms needed to fuel robust, sustainable and more inclusive economic growth for the Philippines.

These reforms included laws on tax reform, liberalization of the rice sector in a bid to bring down the price of the staple, the strengthening of the charter of the central bank as well as moves to improve the ease of doing business and relax the foreign investment negative list to allow more foreign investors to come here.

The credit watchdog also cited the country’s unemployment rate, which has been declining in the past few years, signaling the economy’s strengthening labor market even as the working-age population continues to grow.

A major move in the labor sector is the bill awaiting congressional approval that will put an end to contractualization.

S&P noted that the country’s economy was growing at a consistently faster pace than that of its peers, and that this growth rate should continue over the next few years as long as the current level of investments are maintained.

What is significant in the credit upgrade is the “stable” outlook S&P gave the country, on the view that the Philippine economy is poised to maintain its strong trajectory over the medium term.

S&P, in fact, noted that it might raise the ratings over the next two years if the government makes significant further achievements in its fiscal reform program, or if the country’s external position improves such that its status as a net external creditor becomes more secure over the long term. It may also raise the ratings if it finds that the institutional settings in the Philippines have improved markedly.

The government needs to continue pursuing policy initiatives such as tax reform, trade liberalization and infrastructure modernization to sustain the economy’s growth momentum, attract investments and eventually ensure socioeconomic inclusion for all Filipinos.

That should be the abiding end goal of economic progress — that its fruits are shared by all. While the Philippine economy appears to be on the right track, much remains to be done to provide gainful employment to all Filipinos, and end the scourge of poverty and inequality.