By Luisa Maria Jacinta C. Jocson, A reporter
GLOBAL RATINGS WELL S&P affupset the Philippines’ investment rating on Tuesday and raised its outlook to “positive” from “stable” to reflect the potential for strong economic growth amid improved institutional capacity due to “effective policymaking.”
The credit watchdog on Tuesday affirmed its long-term “BBB+” rating, a notch below the government’s target of “A” rating. It also maintained its “A-2” short-term rating for the Philippines.
However, S&P Global raised its rating outlook to “positive” from “stable.” The positive outlook means that the Philippines’ credit rating could be raised in the next two years if the improvement continues.
“Our improved institutional assessment drives our positive outlook for the Philippines. “We believe that the strengthening of the country’s institutional framework, which has contributed to the significant improvement in sovereign credit ratings over the past decade, will continue,” S&P Global said in a statement. “This is reflected in the strong recovery of the economy over the past two years, and ongoing reforms to support business and investment conditions.”
“This development could lead to strong economic support in the next 12-24 months if the Philippine economy maintains its external strength, healthy growth rates, and financial performance will strengthen.”
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. he said the improved outlook of the credit watchers “reflects the work the government has done to improve the economic, financial, and financial situation, enabling strong growth to continue.”
Finance Secretary Ralph G. Recto also said this “soundsfwe are improving our economic and political stability and that we are on track to achieve growth-enhancing financial integration. “
“We have an extensive ‘Road to A’ plan to ensure we secure further development in the near future,” he added.
S&P Global said the Philippines’ sovereign rating shows “above-average growth potential for the economy.”
“This power supports the positive effects of development. Ratings are also benefiting from the country’s strong external environment,” it added.
In the first nine months of the year, the Philippine economy grew by 5.8%, slightly below the government’s target of 6-7% growth in gross domestic product (GDP) this year.
The government aims for GDP growth of 6.5-7.5% next year and growth of 6.5-8% from 2026 to 2028.
S&P Global expects Philippine GDP growth to average 5.5% this year, driven by exports and easing inflationary pressures.
“Continued changes in business, investment, and tax issues should benefit growth over the next three to four years.”
The Philippine economy is likely to grow at an annual rate of 6.2% over the next three years, it added.
“Strong domestic and corporate balance sheets, and strong net income support the positive trajectory of the Philippine economy,” S&P Global said.
“Continued efforts to address infrastructure gaps, and the improvement of the business environment through regulatory and tax reforms should also support the growth of economic output.”
CURRENCY CHANGES
Government reforms in finance and increase the economic situation, said the credit rating.
“We believe that effective policy implementation in the Philippines has brought about a structural improvement in the country’s credit metrics. Financial reforms increased government revenue as a share of GDP and helped finance public investment. Infrastructure development and the policy environment have helped keep economic growth strong over the past decade,” he said.
“The government’s fiscal and debt position has deteriorated due to the economic downturn caused by the pandemic and unconventional policy responses. Financial barriers were built with a long track record of prudence before the pandemic subsided, but consolidation has begun with the economy recovering properly. The Philippines’ low GDP per capita compared to other investment-grade sovereigns upsets these powers,” it added.
The latest data from the Treasury showed that the budget deficit decreased by 1.35% to P970.2 billion in the first nine months.
The government wants to reduce the Deficit-to-GDP ratio to 5.6% this year and to 3.7% by 2028.
“The Philippine government has generally implemented effective and prudent fiscal policies over the past decade. Improvements in spending quality, a manageable fiscal deficit, and low general government debt bear this out,” said S&P Global.
However, the credit rating agency said that restoring financial and credit settings to pre-pandemic levels will be challenging and likely to be a slow process.
“The ongoing economic recovery in the Philippines should help reduce the general government deficit and stabilize the debt burden,” he said. “However, it will take several years for financial ratios to return to pre-pandemic levels given the capital base.”
S&P Global added that it expects the country’s total public debt to decline gradually as fiscal consolidation continues.
Going forward, the credit watcher said it could improve the Philippines’ credit rating if the current account deficit and fiscal position remain well managed.
“We may raise the ratings if our expectations of a current account deficit deterioration over the forecast period are realized in such a way that the buffers in the Philippines’ narrow foreign asset base are maintained and if the government achieves fiscal consolidation quickly,” he said.
S&P Global expects the country’s current account deficit to continue but at “low levels.”
The BSP estimates that the current account deficit will reach $6.8 billion this year, equivalent to 1.5% of GDP. In the first half of the year, the country’s current account deficit reached $7.1 billion, accounting for 3.2% of economic output.
On the other hand, the valuation perspective can be revised to “stabilize” if the economic recovery slows down or if the government’s financial and credit situation deteriorates.
“If the ongoing current account deficit leads to a deterioration of the Philippines’ external balance sheet, we will revise the outlook to stabilize,” S&P Global added.
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