The economic team of the incoming Marcos administration set its sights on the attainment of “A” investment grade rating through better tax administration and fiscal consolidation.
“As Finance secretary under the incoming administration, I will make the attainment of an ‘A’-level credit rating as one of the goals of the economic team. This can be done by improving tax administration and adopting a fiscal consolidation framework, among others,” outgoing Bangko Sentral ng Pilipinas Governor and incoming Finance Secretary Benjamin Diokno told investors at the recent Standard Chartered Investor Roundtable in Singapore
Diokno said the Philippines before the pandemic was on its way to an A-level credit rating, but the onslaught of the COVID-19 virus set back the goal temporarily. The Philippine economy remained strong, and the government sustained the reform momentum, he said.
“As such, it is not surprising that the rating agencies unanimously affirmed their investment-grade ratings of the Philippines throughout the pandemic despite a wave of downgrades for many advanced and emerging economies,” Diokno said.
Diokno said pursuing a fiscal consolidation plan would help the country achieve the elusive “A” investment grade score from global credit rating agencies Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.
Debt watchers earlier cited the country’s strong fundamentals, adequate buffers against shocks and sound macroeconomic management as reasons why they decided to affirm the country’s investment grade ratings.
Data from the BSP showed the gross international reserves declined to S$103.65 billion as of end-May from $105.4 billion in April.
The latest GIR level represented a more than adequate external liquidity buffer equivalent to 8.7 months’ worth of imports of goods and payments of services and primary income. It was also about 7.4 times the country’s short-term external debt based on original maturity and 4.7 times based on residual maturity.
Moody’s Investors Service affirmed the Philippines’ “Baa2” investment grade rating with a stable outlook in July 2020. It was followed by S&P Global Ratings’ affirmation of its “BBB” rating with a stable outlook in May 2021.
Japan Credit Rating Agency affirmed its “A” rating with a stable outlook for the Philippines in September 2021. Fitch Ratings affirmed its “BBB” rating with a negative outlook for the country in February 2022.
Fitch Solutions, a unit of Fitch Group, expects the government to incur a lower budget deficit to 7.5 percent of the gross domestic product in 2022 and 6.2 percent in 2023 on the expected revenue growth.
Fitch Solutions said these revisions came after the Department of Budget and Management released the National Budget Memorandum on June 9, detailing the fiscal aggregates which the interagency Development Budget Coordination Committee approved on May 24.
“Our 2022 deficit forecast is slightly below the official projection of 7.6 percent of GDP due to a slower economic growth assumption, whilst our 2023 forecast is slightly wider than the government’s projection of 6.1 percent of GDP as we expect expenditure to exceed the official target,” it said.
“Nevertheless, we still believe that the Philippines is still on track for a gradual fiscal consolidation over the coming years as strong revenue growth alongside a recovering economy and positive tax reforms will likely offset expansionary fiscal spending,” it said.