Philippines wins another rating upgrade from S&P

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Standard-Poor_GreenRating agency Standard and Poor’s (S&P) has again upgraded the Philippines’ credit rating to two notches above junk status, as the debt watcher expects the country to sustain its fiscal gains supported by a strong external payments position.

In a statement on May 8, S&P said it raised the country’s long-term sovereign rating to ‘BBB’ from ‘BBB-‘ and its short-term rating to ‘A-2’ from ‘A-3′, firming up the Philippines’ status as an investment grade sovereign.

This means the country can borrow cheaper from abroad and would become more attractive to investors that place their bets only on above-junk markets. S&P assigned a ‘stable’ outlook, thus the new rating will hold for at least the next year.

“We raised the ratings because we now believe the ongoing reforms to address shortcomings in structural, administrative, institutional, and governance areas will endure beyond the current administration. In turn, we believe the resulting gains in government revenue generation, spending efficiency, and the improvements in public debt profile and investment environment will at least be preserved in the medium term under the next administration,” said S&P credit analyst Agost Benard.

“This is based on our assessment that even though a change of administration after the presidential elections in 2016 represents some uncertainty for reforms, the risks have shifted toward maintaining the impetus and direction of the process, away from a potential reversal or abandonment of advances achieved to date,” Benard said.

Also boosting the Philippines’ credit rating is its strong external payments position that receives support from the central bank’s policy moves.

“The Philippines’ strong external profile is an important credit support. With a long track record of balance of payments surpluses, the Philippines has accummulated a substantial foreign exchange reserve buffer. That buffer affords an import coverage ratio above prudential norms and low refinancing risk,” Benard said.

Benard said S&P expect remittances and service – primarily the Philippines’ business process outsourcing sector – to generate foreign exchange earnings that are more than ample to cushion trade deficits of 6 to 9 per cent of GDP.

“An improved monetary policy environment is another rating support. Philippines’ inflation has been low and fairly stable in the face of repeated external shocks, even as lingering structural and institutional shortcomings curb the effectiveness of it monetary policy. As a result, inflation expectations are well anchored, enabling a low interest rate environment to take hold,” Benard said.

Earlier on May 8, the BSP kept it policy rates at record lows of 3.5 per cent and 5.5 per cent for the overnight borrowing and lending windows, respectively. It however hiked by another percentage point the required reserves for universal, commercial and thrift banks for a second time this year to contain rapid expansion in the country’s money supply.

Inflation accelerated to 4.1 percent as of last month, but is still at the midpoint of the central bank’s full-year target range of 3 to 5 per cent.

“We are very pleased that S&P has recognised the Philippines’ remarkable economic comeback,” Finance Secretary Cesar V. Purisima said in a statement.

“This is further proof of President Aquino’s belief that good governance is good economics. We will continue to institutionalise good governance so our country’s economic growth is both sustainable and inclusive. This has been the 18th positive credit rating action since President Aquino took office, and the 4th upgrade from S&P,” Purisima said.

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Reading Time: 2 minutes

Rating agency Standard and Poor’s (S&P) has again upgraded the Philippines’ credit rating to two notches above junk status, as the debt watcher expects the country to sustain its fiscal gains supported by a strong external payments position.

Reading Time: 2 minutes

Standard-Poor_GreenRating agency Standard and Poor’s (S&P) has again upgraded the Philippines’ credit rating to two notches above junk status, as the debt watcher expects the country to sustain its fiscal gains supported by a strong external payments position.

In a statement on May 8, S&P said it raised the country’s long-term sovereign rating to ‘BBB’ from ‘BBB-‘ and its short-term rating to ‘A-2’ from ‘A-3′, firming up the Philippines’ status as an investment grade sovereign.

This means the country can borrow cheaper from abroad and would become more attractive to investors that place their bets only on above-junk markets. S&P assigned a ‘stable’ outlook, thus the new rating will hold for at least the next year.

“We raised the ratings because we now believe the ongoing reforms to address shortcomings in structural, administrative, institutional, and governance areas will endure beyond the current administration. In turn, we believe the resulting gains in government revenue generation, spending efficiency, and the improvements in public debt profile and investment environment will at least be preserved in the medium term under the next administration,” said S&P credit analyst Agost Benard.

“This is based on our assessment that even though a change of administration after the presidential elections in 2016 represents some uncertainty for reforms, the risks have shifted toward maintaining the impetus and direction of the process, away from a potential reversal or abandonment of advances achieved to date,” Benard said.

Also boosting the Philippines’ credit rating is its strong external payments position that receives support from the central bank’s policy moves.

“The Philippines’ strong external profile is an important credit support. With a long track record of balance of payments surpluses, the Philippines has accummulated a substantial foreign exchange reserve buffer. That buffer affords an import coverage ratio above prudential norms and low refinancing risk,” Benard said.

Benard said S&P expect remittances and service – primarily the Philippines’ business process outsourcing sector – to generate foreign exchange earnings that are more than ample to cushion trade deficits of 6 to 9 per cent of GDP.

“An improved monetary policy environment is another rating support. Philippines’ inflation has been low and fairly stable in the face of repeated external shocks, even as lingering structural and institutional shortcomings curb the effectiveness of it monetary policy. As a result, inflation expectations are well anchored, enabling a low interest rate environment to take hold,” Benard said.

Earlier on May 8, the BSP kept it policy rates at record lows of 3.5 per cent and 5.5 per cent for the overnight borrowing and lending windows, respectively. It however hiked by another percentage point the required reserves for universal, commercial and thrift banks for a second time this year to contain rapid expansion in the country’s money supply.

Inflation accelerated to 4.1 percent as of last month, but is still at the midpoint of the central bank’s full-year target range of 3 to 5 per cent.

“We are very pleased that S&P has recognised the Philippines’ remarkable economic comeback,” Finance Secretary Cesar V. Purisima said in a statement.

“This is further proof of President Aquino’s belief that good governance is good economics. We will continue to institutionalise good governance so our country’s economic growth is both sustainable and inclusive. This has been the 18th positive credit rating action since President Aquino took office, and the 4th upgrade from S&P,” Purisima said.

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