PH due for new credit-rating upgrades soon

The Philippines may be due for another credit-rating upgrade in the coming months as the economy continues to exhibit the sustainability of its growth despite challenges inside the country and overseas.

This potential vote of confidence in the Philippine economy would mean cheaper borrowing rates for the government that, in turn, would free up more resources to spend on vital infrastructure and social welfare projects.

It would also result in lower interest rates for businesses and consumers, leading faster job creation and higher domestic spending to propel the economy further.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo this week said the country’s sound macroeconomic fundamentals might be enough to convince rating agencies to grant another upgrade.

“They have seen our balance-of-payments and current account surpluses that have been around for the last 10 years,” Guinigundo said at a press conference yesterday.

“Our debt-to-GDP (gross domestic product) ratio has gone down significantly. In the past, this was the main challenge of the Philippine economy. We were once described as the most heavily-indebted country in Asia,” he said.

In the last 10 years, however, Guinigundo said the Philippines has achieved a significant turnaround to become one of the region’s few bright spots.

Apart from enjoying one of the fastest growth rates in Asia—7.2 percent in 2013, beaten only by China’s 7.5 percent—debt levels both for the government and the private sector have gone down to more manageable levels.

At the end of 2005, the national government’s level of debt relative to the size of the economy as measured by GDP stood at 68.5 percent. This went down to 49.2 percent at the end of last year.

Total foreign debt relative to GDP has also gone down from 52.7 percent in 2005 to 21.9 percent today. The country’s external debt to GDP was lower than Malaysia’s 31 percent, Indonesia’s 30.4 percent, and Thailand’s 35.8 percent last year.

Guinigundo attributed the country’s progress to the government’s early payments of loans, which has helped free up fiscal space and, in turn, allowed the state to increase infrastructure spending.

The government has also been successful in implementing several key reforms such as increasing the country’s tax base by running after tax cheats and the passage of higher taxes on alcohol and tobacco products.

Last year, the Philippines won three “investment grade” ratings for government-issued foreign debt.