MANILA, Philippines - Monetary authorities have expressed optimism the Philippines would achieve another credit rating upgrade from international credit rating agencies within the second half of the year on the back of the country’s strong macroeconomic fundamentals.
Bangko Sentral ng Pilipinas (BSP) deputy Governor Diwa Guinigundo said the convergence of high economic growth and stable inflation would finally convince international credit rating agencies to upgrade the country’s credit rating.
“I share that thought especially with the beautiful convergence of high economic growth and stable inflation,” Guinigundo stressed.
The Philippines logged a surprising gross domestic product (GDP) growth of 6.4 percent in the first quarter, exceeding the revised four-percent growth booked in the fourth quarter of last year and the government projection of 5.2 percent.
The strong growth came on the back of the country’s higher domestic demand, a boost in government spending, and recovering exports, amid a low inflation environment.
The BSP managed to keep inflation rate at bay at three percent in the first five months of the year, or well within the lower end of its full-year target of three percent to five percent. In the index of consumer prices eased slightly to 2.9 percent in May from three percent in April.
However, the BSP official pointed out that there are also risks brought about by the spillovers from the sovereign debt crisis in Europe and the economic uncertainties in the US that could spoil a possible upgrade.
“What could upset this expectation is the sudden deterioration of the global economy and financial markets and quick spillover to emerging markets including the Philippines,” Guinigundo explained.
He said monetary authorities are confident that positive factors led by robust real sector, stable prices, healthy external payments position, strong banking system, and promising public finance could hopefully outweigh the negative shocks.
Late last month, the government received its sixth upgrade barely in the first half of President Aquino’s six-year term after New York-based Moody’s Investors Service upgraded the credit rating outlook of the Philippines to positive from stable, raising the possibility of a rating upgrade within the next six to 12 months.
London-based Fitch Ratings currently rates the country’s sovereign credit at one notch below investment grade on a stable outlook while Moody’s as well as Standard & Poor’s rate the country at two notches below investment grade on a positive outlook.
Investment banks are also confident that the Philippines would achieve a credit rating upgrade within the next three to six months but the much-coveted investment grade rate is unlikely to be attained until the next two years.
Prakriti Sofat, economist at London-based Barclays Capital Ltd, said the country is likely to receive a one-notch upgrade either from S&P or Moody’s within the second half of the year.
On the other hand, Singapore-based financial market analysis provider Forecast Pte economist Radhika Rao stressed the need for the Philippines to pass new tax measures to improve revenue collections and attract more investments to achieve an investment grade rating.
She pointed out that rating agencies have already noted the improvement in the country’s debt and risk metrics and are already positive on the growth prospects.
Philippine fiscal and monetary authorities made a pitch for a much coveted investment grade rating during the 45th annual meeting of the Board of Governors of the Asian Development Bank (ADB) held in the country early last month.
Finance Secretary Cesar Purisima said during the conference that the Philippines was four notches below the bond market implied rating.