Nomura sees investment grade rating for Phl this year

MANILA, Philippines - The Philippines could notch its first-ever investment grade status this year on the back of strong economic fundamentals that could also mean more capitalinflows and continued pressure for peso to appreciate, an investment bank said.

“Economic fundamentals are strong and there is continued momentum toward reform/liberalization – the Philippines could receive a credit rating upgrade this year,” Nomura Singapore Ltd. said in a report released yesterday.

Reforms have been noticed by foreign investors which could soon attract more capital investments, it said, a scenario that has been “missing for the last two years” of economic success.

The country has enjoyed 11 positive credit rating actions since the Aquino administration took over in July 2010. It has since brought the country’s creditworthiness to just one notch below investment grade, which once achieved, could lower borrowing costs and attract more foreign investors.

The latter has been considered the missing link with foreign direct investments (FDI) only amounting to $1.2 billion as of November last year, below the $1.5-billion forecast and a measly compared to other Southeast Asian nations.

“In addition to progress made on the government’s infrastructure investment drive, we expect improvements in FDI,” Nomura said.

This, in turn, could help the peso appreciate more with Nomura forecasting 39.20 to a dollar exchange rate this year. This could further strengthen to 38.20 in 2014. The peso, which closed 40.73 to a dollar yesterday, was Asia’s second best performer last year.

Inflows, Nomura said, would be driven by gains earnings of the business process outsourcing sector. Exports, which are forecast to grow 6.7 percent and nine percent this year and the next, will also contribute to the overall growth.

“The view that relatively low inflation in the Philippines has led to limited (peso) appreciation on a real trade weighted basis (supports the strength). This implies that policymakers are likely to be more accommodative to nominal (peso) appreciation,” it explained.

“The current diverse mix of capital inflows is still viewed as relatively healthy,” it added.

The Bangko Sentral ng Pilipinas (BSP), which has unveiled several macroprudential measures versus capital inflows, is expected to use more of its tools should “unfavorable mix” of inflows occur.

In the report, Nomura also reiterated and offered new economic forecasts. It said growth could hit 6.4 percent this year before slowing down to 5.8 percent in 2014. Inflation, on the other hand, could settle at 4.6 percent and 4.5 percent, respectively.

The bank sees imports expanding 15 percent in 2013 and 13 percent in 2014, while the unemployment rate is forecast to drop to 6.7 percent and 6.5 percent.