Philippines gets second investment rating
Global rating agency Standard & Poor’s (S&P) has raised its investment rating for the Philippines one level to BBB- from BB+, with a stable outlook, the agency said in a statement on May 2.
It is the second upgrade after Fitch raised its rating for the Philippines to investment grade on March 27. The move comes earlier than expected.
S&P said the decision was based on “the country’s strong external profile, moderate inflation and declining reliance on foreign currency debt.”
It added the country has created a substantial foreign exchange reserve buffer with its current account surpluses, which will be sustained “over the next several years” by continued remittances from the country’s large overseas labour force and the growing business process outsourcing industry.
“The buffer makes for low refinancing risk and an import cover ratio well above prudential norms,” S&P said, adding that “low and fairly stable” inflation also supported the rating upgrade.
With investment-grade status from two of the major agencies, the Philippines now becomes eligible to be part of the Barclays US Investment-Grade and Global Aggregate and Asia Pacific IG Aggregate indices, as well as other investment-grade indices from Citigroup.
The Philippines’ Finance Secretary Cesar Purisima said the investment grade rating “is another resounding vote of confidence on the Philippines and an affirmation of what the markets already recognise – that our economy’s underlying soundness is on par with countries rated investment grade or higher.”
“The Philippine government expects Moody’s, which still rates the country a notch below investment grade, to soon follow suit,” the local central bank said in a statement.
The awarding of the second investment grade confirms that the Aquino administration’s policies have been effective at rubbing away at the poor international perception that has firmly been attached to the country’s business climate.
Serving as a salient example to these improved policies, since Aquino assumed office in 2010 the incumbent government has passed the national budget on-time every year, a high-ranking Asian Development Bank official recently pointed out to Inside Investor.
Moreover, the Philippines’ revamped public-private partnership programme has ran into zero cases of litigation in the three projects that have been awarded thus far, a stark contrast from the acrimonious legal cases that resulted in international court debacles in the previous decade.
However, as for S&P, the country’s low income level is holding back a higher rating, with per capita gross domestic product projected at $2,850 this year, which is “below that of most similarly rated sovereigns,” the agency said.
Other factors that hamper the country’s growth include infrastructure shortfalls, restrictions on foreign ownership of some businesses that deter foreign investment and the “concentrated nature of the economy,” it added.
The investment grade status can also be a double-edged sword if not properly managed. The Philippines has to carefully monitor the inflow of so-called hot money into government bonds and currency trades, which could send the Philippine peso soaring and offset competitiveness in the fledging manufacturing sector.
Global rating agency Standard & Poor's (S&P) has raised its investment rating for the Philippines one level to BBB- from BB+, with a stable outlook, the agency said in a statement on May 2. It is the second upgrade after Fitch raised its rating for the Philippines to investment grade on March 27. The move comes earlier than expected. S&P said the decision was based on "the country’s strong external profile, moderate inflation and declining reliance on foreign currency debt." It added the country has created a substantial foreign exchange reserve buffer with its current account surpluses, which will be...
Global rating agency Standard & Poor’s (S&P) has raised its investment rating for the Philippines one level to BBB- from BB+, with a stable outlook, the agency said in a statement on May 2.
It is the second upgrade after Fitch raised its rating for the Philippines to investment grade on March 27. The move comes earlier than expected.
S&P said the decision was based on “the country’s strong external profile, moderate inflation and declining reliance on foreign currency debt.”
It added the country has created a substantial foreign exchange reserve buffer with its current account surpluses, which will be sustained “over the next several years” by continued remittances from the country’s large overseas labour force and the growing business process outsourcing industry.
“The buffer makes for low refinancing risk and an import cover ratio well above prudential norms,” S&P said, adding that “low and fairly stable” inflation also supported the rating upgrade.
With investment-grade status from two of the major agencies, the Philippines now becomes eligible to be part of the Barclays US Investment-Grade and Global Aggregate and Asia Pacific IG Aggregate indices, as well as other investment-grade indices from Citigroup.
The Philippines’ Finance Secretary Cesar Purisima said the investment grade rating “is another resounding vote of confidence on the Philippines and an affirmation of what the markets already recognise – that our economy’s underlying soundness is on par with countries rated investment grade or higher.”
“The Philippine government expects Moody’s, which still rates the country a notch below investment grade, to soon follow suit,” the local central bank said in a statement.
The awarding of the second investment grade confirms that the Aquino administration’s policies have been effective at rubbing away at the poor international perception that has firmly been attached to the country’s business climate.
Serving as a salient example to these improved policies, since Aquino assumed office in 2010 the incumbent government has passed the national budget on-time every year, a high-ranking Asian Development Bank official recently pointed out to Inside Investor.
Moreover, the Philippines’ revamped public-private partnership programme has ran into zero cases of litigation in the three projects that have been awarded thus far, a stark contrast from the acrimonious legal cases that resulted in international court debacles in the previous decade.
However, as for S&P, the country’s low income level is holding back a higher rating, with per capita gross domestic product projected at $2,850 this year, which is “below that of most similarly rated sovereigns,” the agency said.
Other factors that hamper the country’s growth include infrastructure shortfalls, restrictions on foreign ownership of some businesses that deter foreign investment and the “concentrated nature of the economy,” it added.
The investment grade status can also be a double-edged sword if not properly managed. The Philippines has to carefully monitor the inflow of so-called hot money into government bonds and currency trades, which could send the Philippine peso soaring and offset competitiveness in the fledging manufacturing sector.
