Fiscal reforms to steer ‘A’ credit rating – DBCC

MANILA, Philippines — The Philippines is on track to secure a single-A credit rating within the decade as sustained implementation of fiscal reforms and strong economic growth open doors for foreign support and investment, according to the Cabinet-level Development Budget Coordination Committee (DBCC).

In its latest report, the DBCC pointed to the COVID-19 pandemic as the primary reason for not achieving the highest credit rating, citing the country’s strong record in revenue mobilization and fiscal consolidation prior to the crisis.

“The country is in a strong position due to fast implementation of ongoing structural reforms, sustained economic growth and efforts to open key sectors to greater foreign ownership and investments,” it said.

Finance Secretary Ralph Recto earlier revealed that the Philippines was poised to receive a credit rating upgrade from “BBB+” to “A-” from S&P Global Ratings this year, if not for the corruption scandal that erupted over the flood control projects of the Department of Public Works and Highways.

When asked if there’s a significant chance of a credit rating reduction, Recto said there remains a strong possibility that the country’s credit rating will be maintained, although he noted that the likelihood of an upgrade was higher before the controversy.

Still, the DBCC added that the continued diversification of the economy is expected to strengthen the country’s resilience and flexibility over time, paving the way toward achieving a single-A credit rating.

A high credit rating indicates that the country is considered creditworthy, meaning it is very likely to repay its debts on time.

An improvement in the rating signals a strong economy, rooted in sound fiscal management, which can lead to lower borrowing costs.

Meanwhile, on the proposal to reduce the value-added tax to 10 percent from the current 12 percent, Recto warned that a decrease in revenues could surely impact the Philippines’ global credit rating.

The DBCC added that various credit rating agencies have continued to express confidence in the Philippines’ credit profile, noting that the government’s timely policy responses and prudent risk management reflect its commitment to maintaining a stable path toward long-term fiscal consolidation.

“Amidst persisting external uncertainties, the government will focus on boosting the domestic economy and increasing its resilience by maintaining sound macroeconomic fundamentals, strengthening the implementation of key investment-inducing reforms,” the DBCC said.

It added that the comparative data show that the Philippines’ debt burden remains significantly lower than that of several neighboring economies, underscoring the government’s prudent debt management and sound macroeconomic fundamentals.