Fitch and martial law

The news of Fitch Rating’s decision to bring a notch higher the country’s credit worthiness resonated positively in the domestic market, both on the local currency and the bourse. One market analyst observed that the uptick in the country’s investmentgrade credit score “cured” the bourse of its initial weakness at the onset of the trading week. The timing was just right. It was a balm, a booster shot needed to smoothen the roller coaster ride the Philippine Stock Exchange index (PSEi) had taken for nearly two weeks.

On the currency, as one market analyst put it, the Philippine peso led gains among emerging Asian currencies after Fitch Ratings upgraded the country’s sovereign rating. Fitch raised the Philippines’ long-term foreign currency issuer default to BBB from BBB-, saying the economy is set to remain one of the fastest growing in Asia. The Indian rupee and Malaysian ringgit also rallied, while the dollar paused after rising Friday on a betterthan-expected US payroll report.

Thai markets were closed for a holiday.

The Fitch latest assessment on the country was made public while the bicameral conference committee in Congress was doing the pencil pushing on the fine print of the Tax Reform for Acceleration and Inclusion (TRAIN). The rating firm took cognizant of the political resolve of the government to pump prime the domestic economy through its “Build, Build, Build” program that will be financed from the revenues to be generated from the implementation of TRAIN. The government plans to allocate 70 percent of the generated revenues from the TRAIN for its infrastructure projects under the “Build-Build-Build.” The amount is somewhat staggering. Capital expenditures (Capex) for infra projects have been pegged between $160 billion and R170 billion or R8 trillion to R9 trillion, depending on the movement of the pesos vis-à-vis the US dollar. Hold your horses, the capex covers the entire, remaining period of the Duterte administration, until the 2022. The passage of the TRAIN into law could hasten the implementation of the vital infrastructure projects.

The question now is: Will the two other big credit rating agencies – Moody’s Investors Service and Standard & Poor’s – re-align their assessments with Fitch? It has been four long years since the country achieved an investment grade rating. BBB is a median in the rating scale of Fitch. With the passage of the TRAIN, will the Philippines be accelerated, skipping the BBB+ grade, to finally reach the “A” status in the rating scale?

Should this happen, that would be good news for the both the national government and the private sector planning to source funding requirements offshore. Lower interest cost amidst the expectation in the market here and aboard that interest rates may be on the upward trajectory.

Another news that reverberated in the halls of business is the martial law extension in Mindanao for one year. Reactions were mixed. One positive comment was received: “Mindanao clients are so positive and have full confidence on the government. Selected countryside clients out of Mindanao and have businesses in the region have similar view.” An epilogue: The barely decorated TRAIN is now completely adorned with holiday trimmings and has, indeed, become a Christmas TRAIN loaded with goodies for both the government and some.

Talk back to me at sionil731@ gmail.com