The Japan Credit Rating Agency, whose opinions matter to Japanese and other regional investors, on Friday raised its outlook for the Philippines from BBB+ stable to BBB+ positive, citing Manila’s twin efforts to accelerate infrastructure development and boost revenues through tax reform.
The positive outlook puts the Philippines just a notch away from securing a single-A credit rating from JCR.
JCR said the massive infrastructure projects being undertaken by the Philippines would help sustain robust economic growth for the country over the medium to long term, while the comprehensive tax reform program would help keep the fiscal house in order despite increased spending.
“… Infrastructure development has accelerated under the Duterte administration amid expanding expenditures based on its Public Investment Program and improved budget execution rate brought by budget reforms,” it said.
It also noted that “(a)s part of its efforts to secure the necessary financial resources for such expanding expenditures, the government has been vigorously pursuing its comprehensive tax reform program (CTRP).”
Finance Secretary Carlos Dominguez III welcomed the positive outlook from JCR, citing it as “recognition of the Duterte administration’s aggressive yet prudent economic policy of spending big on infrastructure modernization while maintaining fiscal discipline.”
Bangko Sentral ng Pilipinas Governor Benjamin Diokno also welcomed the latest comments from JCR, saying “the Philippines’ robust economic growth is sustainable over the long haul, in part because of the BSP’s commitment to maintain price stability and the soundness of the banking and financial system.”
Diokno added “the BSP will continue to provide an enabling environment for sustainable, robust, and more inclusive economic growth by staying committed to its price and financial stability mandates.”
JCR acknowledged that a healthy banking system was lending support to sustainability of the Philippines’ economic growth. JCR cited the banking system’s low exposure to bad debts, with the NPL ratio settling at 1.8 percent, and sufficient capitalization, with the capital adequacy ratio at 15 percent, in 2018.
JCR’s BBB+ rating with positive outlook is just one notch away from a single-A credit rating.
A single A credit rating will place the Philippines on the radar screen of even more portfolio investors, given that some institutional investors have a policy of investing only in bonds issued by A-rated sovereigns or corporate entities.
The Philippines currently enjoys an investment grade ratings from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.