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Malaysian debt rater upgrades Philippines’ credit outlook

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Workers are seen on scaffolding at a construction site for an expressway in Manila on March 8, 2017. -- AFP

A MALAYSIAN debt watcher has upgraded the Philippines’ credit outlook to “positive” from “stable” in the face of strong economic growth, rising foreign investment inflows and aggressive infrastructure push.

“The positive outlook reflects the country’s stronger-than-expected GDP (gross domestic product) performance in 2016 and growing FDI (foreign direct investments) despite a change in administration, which provides comfort on policy continuity,” Esther Lai, head of Sovereign Ratings at the Kuala Lumpur-based RAM Ratings Services Berhad, said in a press release.

In particular, RAM Ratings analysts cited the P8.44-trillion infrastructure agenda laid out by the administration of President Rodrigo R. Duterte for the next five years, saying that the overall pace of the construction drive is expected to pick up even if the government may miss its ambitious targets in this regard.

Efforts to improve the ease of doing business by trimming red tape and simplifying rules should likewise enhance investor confidence in the country, which in turn will help rake in more FDIs.

The first of up to five tax reform packages of the Finance department that is expected to be in place when 2018 starts also provides support to the country’s credit rating.

In October last year, RAM Ratings upgraded the country’s investment grade to “A” — one notch above its rating given in August 2015 — with a “stable” outlook relative to its Southeast Asian peers.

The Philippines also got an “A” rating under RAM Rating’s Malaysia national scale. It likewise affirmed the “BBB” rating for the Philippines under its global scale, which is the minimum investment grade relative to all other countries.

The debt watcher expects the Philippine economy to grow by 6.7% this year, with the pickup seen fuelled by strong manufacturing and export growth this semester. Philippine GDP grew by 6.4% from January-June.

“The Philippines’ ratings could be upgraded if current improvements are maintained and the country’s growth momentum continues with an increased share of domestic investments and FDI. The successful implementation of tax reforms and coordinated rollout of the government’s ambitious infrastructure projects will also be positive rating triggers,” RAM Ratings said in its statement.

On the other hand, a “weakening” of the country’s fiscal health and the reversal of investment and growth-inducing initiatives could compromise the Philippines’ ratings, although such a development would be “unlikely”.

The debt watcher also allayed worries about the country’s current account deficit, noting it has more than enough dollar reserves to shield it from financial shocks.

“The country’s external payments position, which lends strong support to the country’s investment grade credit ratings, is expected to remain strong in the years ahead on account of significantly rising FDIs, underpinned by sustained inflows in remittances and growing tourism receipts,” Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. said in a statement sent by the government’s Investor Relations Office yesterday, as he assured that the central bank will keep inflation low and stable. — Melissa Luz T. Lopez

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