By Luisa Maria Jacinta C. Jocson, Correspondent
S&P GLOBAL RATINGS confirmed the Philippines’ investment grade rating on Tuesday and elevated its outlook to “positive” from “stable” to signify the economy’s robust growth potential in light of bolstered institutional strength resulting from “effective policy making.”
The ratings agency on Tuesday affirmed its “BBB+” long-term credit designation for the nation, which is a step below the “A” level grade aimed for by the government. It also maintained its “A-2” short-term rating for the Philippines.
Nevertheless, S&P Global raised its rating outlook to “positive” from “stable.” A positive outlook indicates that the Philippines’ credit rating could be elevated over the upcoming two years if advancements are sustained.
“Our enhanced institutional evaluation propels our positive outlook on the Philippines. We believe the strengthening of the nation’s institutional frameworks, which has significantly improved the sovereign’s credit metrics over the past decade, will persist,” S&P Global remarked in a statement. “This is illustrated by the strong economic rebound in the last two years, along with ongoing reforms to augment business and investment conditions.”
“This enhancement could yield stronger sovereign support over the next 12-24 months if the Philippines’ economy sustains its external strength, healthy growth rates, and an improvement in fiscal performance.”
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. expressed that the ratings agency’s upgraded outlook “reflects the efforts made by the government to enhance the economic, fiscal, and monetary landscape, allowing robust growth to persist.”
Finance Secretary Ralph G. Recto similarly stated that this “reaffirms our stable economic and political climate, putting us on course for a growth-promoting fiscal consolidation.”
“We have devised a thorough ‘Road to A’ initiative aimed at ensuring that we secure further upgrades shortly,” he added.
S&P Global indicated that the Philippines’ sovereign rating represents the economy’s “above-average growth potential.”
“This strength supports positive development outcomes. The ratings are further reinforced by the country’s strong external position,” it elaborated.
For the first nine months of the year, the Philippine economy recorded a growth of 5.8%, slightly beneath the government’s target of 6-7% gross domestic product (GDP) growth for this year.
The government aims for a GDP growth of 6.5-7.5% the following year and a range of 6.5-8% growth from 2026 to 2028.
S&P Global anticipates Philippine GDP growth to average 5.5% this year, propelled by exports and declining inflationary pressures.
“Continuing reforms in the business, investment, and taxation sectors are expected to benefit growth in the coming three to four years.”
The Philippine economy is projected to grow at an average of 6.2% per year over the next three years, it added.
“Strong household and corporate balance sheets, along with substantial remittance inflows, underpin the Philippine economy’s favorable medium-term trajectory,” S&P Global stated.
“Efforts to address infrastructure deficiencies and enhancements in the business environment through regulatory and tax reforms should also bolster growth in economic productivity.”
FISCAL REFORMS
The government’s fiscal reforms have also improved the economic outlook, the credit agency stated.
“We believe that effective policymaking in the Philippines has introduced structural enhancements to the country’s credit metrics. Fiscal reforms have elevated government revenue as a percentage of GDP and facilitated public investment. Enhanced infrastructure and policy frameworks have helped maintain robust economic growth throughout much of the past decade,” it asserted.
“The government’s fiscal and debt frameworks had declined due to the economic repercussions of the pandemic and the accompanying extraordinary policy measures. Fiscal buffers established through a long history of prudence before the pandemic were diminished, yet consolidation has commenced with the economic recovery being well on track. The Philippines’ low GDP per capita compared to other investment-grade sovereigns tempers these strengths,” it continued.
Recent data from the Treasury showed that the budget deficit reduced by 1.35% to P970.2 billion during the first nine months.
The government is aiming to reduce the deficit-to-GDP ratio to 5.6% this year and further down to 3.7% by 2028.
“The Philippine government has generally implemented effective and prudent fiscal strategies over the past decade. Enhancements to the quality of expenses, manageable fiscal deficits, and relatively low general government indebtedness attest to this,” S&P Global noted.
However, the credit agency pointed out that restoring fiscal and debt conditions to pre-pandemic standards will be challenging and likely a gradual process.
“The ongoing economic recovery in the Philippines is expected to facilitate a reduction in the general government deficit and a further stabilization of the debt load,” it stated. “It will, however, take several years for fiscal balances to revert to pre-pandemic levels given the diminished fiscal leeway.”
S&P Global added that it anticipates the nation’s net general government debt to gradually decrease amid continued fiscal consolidation.
Looking ahead, the ratings agency mentioned it could enhance the Philippines’ credit rating if the current account deficit and fiscal condition are managed effectively.
“We may elevate the ratings if our expectations of a decrease in current account deficits during the forecast period materialize such that buffers in the Philippines’ narrow net external asset position are preserved and if the government achieves more expedited fiscal consolidation,” it suggested.
S&P Global expects the country’s current account deficit to persist but remain at “modest levels.”
The BSP estimates the current account deficit will reach $6.8 billion this year, equivalent to 1.5% of GDP. In the first half of the year, the nation’s current account deficit stood at $7.1 billion, making up 3.2% of economic output.
Conversely, the rating outlook could be adjusted down to “stable” if economic recovery decelerates or if the government’s fiscal and debt conditions weaken.
“If consistently large current account deficits result in a structural weakening of the Philippines’ external balance sheet, we would also adjust the outlook to stable,” S&P Global added.