Bangko Sentral ng Pilipinas Governor Benjamin Diokno is “very optimistic” the Philippines will achieve an “A” credit rating in the next two years amid the vital structural reforms implemented by the government.
“We are on target to get it in two years. For me, the very important things are the structural reforms,” Diokno said in a briefing at the BSP on Friday.
For one, he said the government had implemented a number of structural reforms in 2019 that were pushed by previous administrations in the past decades.
“The road to an ‘A’rating can be accomplished in two years’ time… I am very optimistic [on this],” Diokno said.
Global debt watcher S&P Global Ratings in April last year raised a notch higher its long-term sovereign credit rating on the Philippines to “BBB+” from “BBB” with a stable outlook, citing the country’s above-average economic growth, a healthy external position and sustainable public finances.
The upgrade put the Philippines at par with Mexico, Peru, Thailand, and Trinidad and Tobago. It is higher than the “BBB” ratings of Italy, Portugal, Hungary, Panama and Uruguay.
S&P said in a statement the stable outlook reflected the assumption that the Philippine economy would continue to achieve above-average real gross domestic product growth over the medium term, supporting the sovereign’s credit profile.
It said it may raise the ratings over the next two years if the government makes significant further achievements in its fiscal reform program, or if the country’s external position improves such that its status as a net external creditor becomes more secure over the long term.
“We may also raise the ratings if we find that the institutional settings in the Philippines have improved markedly,” it said.
S&P said it may lower the ratings if the government’s fiscal program leads to much higher-than-expected net general government debt levels, or if real GDP growth declines significantly.
S&P said the rating upgrade reflected the Philippines’ strong economic growth trajectory, which it expected to continue to drive constructive development outcomes and underpin broader credit metrics over the medium term.
S&P said the Philippine economy was among the fastest growing in the world on a 10-year weighted average, per capita basis—a reflection of a supportive policy dynamics and improving investment climate.
S&P projects GDP per capita growth will average approximately 4.9 percent a year over 2019-2022, based on balanced contributions from private consumption and investment growth.
Also, the country’s unemployment rate has been declining for a few years, signaling the economy’s strengthening labor market even as the working-age population continues to grow, it said.
It said the economy’s constructive trajectory should be underpinned by strong household and company balance sheets, continued income growth, sizeable inward remittance flows, and an adequately performing financial system.