MANILA, Philippines - Zurich-based Credit Suisse AG believes that the Philippines would achieve the much-coveted investment grade rating from international credit raters late next year as it has yet to prove a trend of strong economic growth.
Credit Suisse economist Santitarn Sathirath said the Philippines would likely get a new credit rating from Standard & Poor’s as well as Moody’s Investors Service this year but its rating would still be one notch below investment grade.
“We think the Philippines is likely to see rating upgrades this year, but that it still has further to go before achieving investment grade status. We see a good chance that S&P, which put the country on positive outlook last December, will upgrade the Philippines to one notch below investment grade,” he explained.
While we believe the country’s credit rating is likely to be upgraded this year by S&P and Moody’s to one notch below investment grade, he added that the Philippines has quite a bit further to go to earn investment grade status.
“We doubt the Philippines will obtain investment grade status until late 2013,” Sathirath said.
Out of the three main rating agencies, he explained that only Fitch Ratings currently has the Philippines one step away from investment grade, having bumped the country’s rating up last June.
According to him, the missing ingredient for the Philippines in terms of obtaining an investment grade rating is a strong trend of gross domestic product (GDP) growth, especially given its relatively low level of GDP per capita.
“This is one of the areas in which the Philippines has clearly underperformed Indonesia in the past five years. Fitch also made it clear that this is one of the key areas the Philippines needs to improve to get a further upgrade,” he said.
However, Credit Suisse sees a good chance that the Philippines would achieve a investment grade status in late 2013
The investment bank pointed out that the Aquino administration’s commitment to improving governance and increasing infrastructure investment through the public private partnership (PPP) program is critical for boosting the investment to GDP ratio and the long-term growth rate to five percent.
The Philippines managed to trim the budget deficit to P197.75 billion or two percent of GDP last year from a record level of P314.46 billion or 3.5 percent of GDP in 2010. Last year’s budget shortfall was P102.25 billion lower than the deficit ceiling of P300 billion for 2011.
Government revenues went up by 12.6 percent to P1.359 trillion last year from P1.207 trillion in 2010 but was P51.36 billion lower than the P1.411 trillion. The tax take of the Bureau of Internal Revenue went up by 12.5 percent while that of the Bureau of Customs inched up by 2.3 percent.