MANILA, Philippines - British-owned Standard Chartered Bank sees the Philippines achieving an investment grade credit rating as early as 2014 on the back of a credible fiscal reform as well as higher investments.
In a report, Standard Chartered said the country is likely to be the next Asian country to experience an investment grade rating following Indonesia.
The investment bank said the country’s external payments position has improved in recent years, and the strong mandate enjoyed by the Aquino administration is fuelling optimism that the reforms required to satisfy the rating agencies can be pushed through.
However, Standard Chartered said it is a must for the Philippines to pursue fiscal reforms particularly improving tax collection efficiency and boosting infrastructure investment.
“We see fiscal reforms — in particular improving tax collection efficiency and boosting infrastructure investment — as pre-conditions for a rating upgrade. If these conditions are met, the Philippines could achieve investment grade by 2014,” it stressed.
Standard Chartered said the Philippines should concentrate on leveraging on its strengths as it scored high in the areas of trade surplus, logistics, and resilience to external shocks but should improve on its weaknesses after scoring low in terms of its investment-to-gross domestic product (GDP) with 22 percent and debt-to-GDP ratio.
It pointed out that the country’s revenue was also relatively low at 14 percent of GDP last year and fiscal progress should be made a priority as this would help improve the country’s debt to GDP ratio
“A higher growth trajectory will help to raise employment, increase per-capita income and lower poverty rates. An investment-grade rating, in turn, will open up a larger universe of investors in the country. This will provide the impetus for credit spread compression, currency appreciation amid capital inflows,” Standard Chartered said.
The bank said the Philippines has traditionally enjoyed steady growth as quarterly GDP growth averaged 4.7 percent year-on-year between 2001 and 2011. Even during the global financial crisis in 2009, economic growth was positive at 1.1 percent and is largely driven by consumption.
As expected, Philippine fiscal and monetary authorities made a pitch for a much coveted credit rating upgrade during the 45 thannual meeting of the Board of Governors of the Asian Development Bank (ADB) held in the country from May 2 to May 5.