MANILA, Philippines - The Philippines deserves an investment-grade status this year as its economic landscape has “dramatically changed†under the Aquino administration which has begun to address the country’s weaknesses to achieve sustainable and “cohesive†growth, a world renowned economist said.
Dr. Nouriel Roubini, famous for having predicted the 2008 bursting of the US housing bubble, believes credit rating agencies “will soon come to a conclusion†that they have been behind the market in terms of recognizing the country’s economic gains.
“The country has now achieved an economic model that is slightly less based on consumption and that is slightly more based on investment,†Roubini said in his speech during the Philippine Investment Summit yesterday.
“Investment grade is certainly warranted and a decision (by rating agencies) should be formally taken this year,†he added.
Constraints to the country’s credit rating however persist, he noted, pointing to concerns by rating agencies namely the still-high public debt level, low revenues, and a per capita income that is “so seriously low†compared to our neighbors.
There is also a need to accelerate public-private partnership projects and attract more long term foreign investments, he explained. Reforms underway in the mining sector should also make sure that “projects frozen†could proceed with no hindrances.
A law ensuring competition is protected should also be passed, he said, underscoring the need to prevent monopolies and oligopolies.
Threats to growth are also present, particularly large capital inflows that could trigger asset bubbles and excessive peso appreciation that “could affect competitiveness.†So far however, those have never been a cause of worry, thanks to the “sound†management of the central bank.
“All these are targeted to making growth, more sustainable and more cohesive and to increase productivity,†Roubini said.
“Quite soon, rating agencies will come to the conclusion that the Philippines should get investment grade rating,†he said.
The three major debt watchers— Fitch Ratings, Standard & Poor’s Rating Services and Moody’s Investors Service— have all put the country one notch below investment grade which the Aquino administration targets to reach this year to lower debt interest payments and attract more foreign investments.
This early though, foreign investors have already taken note of the improvements in economic management, Roubini said, marked by a strong economic growth of 6.5 percent for the first three quarters of last year.
Economic expansion could very well reach seven percent, he claimed, once the Philippines is able to maximize its “demographic dividend†of having a young workforce with has improving salaries and thus, high consumption and investment abilities.
“Growth could hit seven percent if that demographic dividend is exploited rightly,†Roubini said as he emphasized the need to invest more in people through education and job opportunities.
A declining unemployment rate could also work in our favor, he said, as consumer spending power is strengthened by a steady salary income and record-high remittances. After all, Roubini said consumption continued to account for 70 percent of economic output.
The sound macroeconomic fundamentals go beyond the country’s growth rate, with the national government’s balance sheet kept in check under the Aquino administration. The New York-based economist said fiscal policy has been “one of the important successes†of the present government.
The budget deficit has been contained at about two percent of the economy, while public debt has been gearing toward 50 percent and below, providing space for the government to spend more on infrastructure to boost growth.
Fixed asset investment is lower in the Philippine compared to the country’s peers, but “it has been rising†and could reach five percent of the economy “in the next few years,†Roubini said.