Moody’s Investor Service has upgraded the Philippines’ credit rating a notch higher to Baa2 from Baa3 in view of the continued growth of its economy and the government’s debt reduction initiatives.
Moody’s, which is one of the big three international credit rating agencies, also said the country’s outlook is “stable,” which means the upgraded score will remain in over next 12 to 18 months.
The upgrade came more than a year after the credit rating agency first elevated the Philippines to investment grade, which also lifted the country two notches up from “junk” status.
Key drivers cited for the improvement are the ongoing debt reduction program aided by improvements in fiscal management, continued favorable prospects for strong economic growth, and limited vulnerability to the risks commonly affecting emerging markets.
Improved BOC collections
It also noted that administrative reforms in the key revenue-collecting agencies—most recently in the Bureau of Customs—have led to “revenue growth in excess of nominal GDP growth for a fourth consecutive year.”
“Coupled with relatively robust economic growth, the Philippines’ fiscal performance has led to the convergence of general government debt as a share of GDP to the corresponding peer medians,” Moody’s said.
“While we expect other measures related to the country’s public indebtedness and debt affordability to improve over the next two years, the corresponding peer medians continue to erode,” it added.
Moody’s also noted the improvement of the Philippines’ rankings in cross-country surveys on institutional quality as the current administration emphasizes good governance. At the same time, the central bank continues to bolster its strong track record in maintaining price and financial stability, contributing to favorable operating conditions for the country’s banking system, currently the only system deemed by Moody’s to have a positive outlook.
The main challenge facing Philippine policymakers is, however, “sustaining the positive trajectory of institutional quality through the political cycle,” it added.
At the same time, Moody’s upgraded the government’s foreign currency shelf rating to (P)Baa2 and the ratings for the liabilities of the country’s central bank, Bangko Sentral ng Pilipinas (BSP), to Baa2. The outlook for these ratings is likewise stable.
Fitch Ratings, one of the three major rating agencies, still has the Philippines at its minimum investment grade.
The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad. It takes political risks into account.
