Japan credit watcher upgrades Philippines rating

MANILA, Philippines — Tokyo-based debt watcher Rating and Investment Information Inc. (R&I) has upgraded its investment grade rating for the Philippines to A- from BBB+ with a stable outlook on the back of the country’s robust economic growth, improving fiscal balance, rising investments and a stable banking sector.

The Japanese credit rating agency said the Philippines would likely see a stable growth and sustained improvement in national income amid active investments, development of domestic business sectors and favorable demographics.

“The fiscal balance as a share of gross domestic product (GDP), which had deteriorated during the COVID-19 pandemic, has improved and the government debt ratio will likely start falling in a year or two,” R&I said.

The country’s A- credit rating, which is three notches above minimum investment grade, was also due to expectations of manageable current account deficit and external debt in the coming year.

“Based on macroeconomic stability and high economic growth path as well as expected continuous improvement in fiscal balance, R&I has upgraded the Foreign Currency Issuer Rating to A-,” it said.

The Philippine economy grew by  5.5 percent last year, lower than the 7.6 percent expansion in 2022. GDP growth, however, picked up to 6.3 percent in the second quarter of the year from 5.8 percent in the first quarter.

For this year, Philippine economic managers are looking at a faster GDP growth of between six and seven percent.

According to R&I, the Philippine economy has been showing fast growth among major economies in Southeast Asia as the service industry is centered on business process outsourcing and expanding manufacturing bases.

The current account deficit, which stood at 2.6 percent of GDP in 2023, will likely narrow to around two percent of GDP by end-2024 amid stable remittances and foreign direct investments.

“Given that the increasing trend of imports such as construction materials backed by infrastructure investments can be seeds for future growth, R&I views that the current account deficit is not necessarily a negative element in the Philippines’ credit assessment,” it said.

Meanwhile, the debt watcher said the fiscal deficit as a share of GDP would decline to a level near the government target of 5.6 percent this year and central government debt would start decreasing in the next two years from the peak of 60.9 percent of GDP in 2022.

“The government covers its financing needs mainly through the issuance of government bonds in the domestic financial market. The country’s debt remains affordable, given the manageable burden of interest payment,” it said.

Finance Secretary Ralph Recto said the credit rating upgrade reflects robust investor confidence in the country’s high economic growth, strong fiscal position and promising outlook.

“This is a milestone achievement. This is the first-ever credit rating upgrade under President Marcos, which proves that investors and creditors have great confidence in his management of the economy,” he said.

Recto said the government’s medium-term fiscal program is its blueprint for the road to A rating.

“This ensures that we can reduce our deficit and debt gradually in a realistic manner while creating more jobs, increasing our people’s incomes, growing the economy further, and decreasing poverty in the process. Sticking to this program can help us get there faster,” he said.

The Department of Finance said a high credit rating sends a strong signal of confidence to investors and creditors, leading to cheaper and more cost-effective borrowing costs for the government and the private sector.