DBM hopeful of credit rating upgrade in 2018

THE DEPARTMENT of Budget and Management (DBM) is confident the Philippines can secure a credit rating upgrade within the year, noting this would be favorable for the government’s plan to increase the share of borrowed funds from abroad.

“We are confident that sustaining our fiscal reform agenda, primarily with Tax Reform and Budget Reform, will lead to a credit upgrade within the year,” Budget Secretary Benjamin E. Diokno said in a statement yesterday.

S&P Global Ratings last week raised its outlook on the Philippine economy to “positive” from “stable,” signaling a stronger chance of getting a rating upgrade in the next six months to two years.

The Philippines currently holds a “BBB” rating from S&P, which is a notch above minimum investment grade. The rating has been on a “stable” outlook since April 2015 prior to this revision.

A higher credit rating allows a country to borrow funds from foreign sources at cheaper rates.

S&P said it is watching if the Tax Reform for Acceleration and Inclusion (TRAIN) law will generate lower-than-expected fiscal deficits and if it drives down government debt.

“The encouraging news is especially relevant in the purview of the government’s medium-term financing program,” said Mr. Diokno.

The Development Budget Coordination Committee (DBCC) in its meeting on April 24 raised its revenue program, taking into account Package 1B of TRAIN that consists of separate bills pending in legislation covering the general tax amnesty, estate tax amnesty, the easing of bank secrecy restrictions, and the Motor Vehicle Users Charge increase.

The two tranches of the first package of the tax reform program are expected to yield P124.9 billion this year, growing to P215.8 billion in 2022. This is larger than the P82.3 billion it first expected for 2018 and P153.6 billion for 2022, which only factored in Package 1A, or the lowering of personal income tax rates, while hiking levies for cigarettes, cars, coal, minerals, and sugary drinks, among others.

The Budget Reform bill, meanwhile, seeks to institutionalize the shift to a one-year validity of appropriated funds that would speed up disbursements.

The DBCC also revised the borrowing program this year to a 65-35 mix, in favor of local sources, from the 74-26 ratio earlier set for 2018 and the 80-20 portfolio programmed last year.

From 2019 to 2022, this will be revised to 75-25 ratio.

“The adjustment is owing to the government’s strategy of diversifying its investor base and tapping new markets to meet its financing requirements,” Mr. Diokno said.

“A potential credit upgrade will only maximize the benefits of this revised financing program. The economy stands to benefit greatly as it will potentially translate to lower borrowing rates to finance our priority programs and projects,” the Budget chief added.

However the government’s fiscal position has been beating targets in the first quarter.

The fiscal deficit stood at P162.2 billion in the first quarter, 96% wider than the P83 billion logged in the same period in 2017, although lower than the P219.1 billion expected.

Overall revenue for the JanuaryMarch period grew 16% to P619.8 billion, beating the P536.7 billion target while total government disbursements surged 27% to P782 billion, surpassing the P755.8 billion goal.

The government programmed a P523.7-billion budget shortfall for 2018 — equivalent to 3% of Philippine gross domestic product — with P2.846 trillion in revenue and P3.37 trillion in expenditure.

“We are only motivated to work harder given the international recognition with our fiscal reform agenda. But we will not stop here as our ultimate aim is to expand economic opportunities and uplift the lives of our constituents,” Mr. Diokno said. —