Moody’s gives medium grade rating for ROPs

Credit rating agency Moody’s Investors Service tagged a medium grade “Baa2” rating for ROPs or Philippine global bonds.

The government returned to the international bond market this week to offer 10-year global bonds, raising $1.5 billion for the effort. As in previous years, the Philippines is the first global bond issuer in Asia this year.

According to Moody’s, the ROP rating which signifies moderate credit risk, was assigned because of the country’s “strong economic performance, a strengthening fiscal position and limited vulnerability to external shocks.

“These are balanced against per capita income and debt affordability, both of which, although improving, are structurally weaker as compared to similarly rated peers,” it noted in a statement.

Moody’s reiterated that the large domestic economy and high growth potential “supports its capacity to absorb shocks.” It said the country’s “favorable demographics support steadily rising labor inputs and potential growth, while keeping the burden of ageing-related costs on government finances low.”

It added though that the per capita income of about $8,400 in 2017 is “lower relative to peers” of around $24,600 for higher-rated “Baa” countries and this was “an important constraint on both economic strength and the rating.”

Moody’s continue to laud the Philippines’ adequate foreign reserves which paired with “low economy-wide external debt” has contributed to macroeconomic stability. “More generally, relatively low reliance on either foreign sources of income or financing insulates the Philippines from the direct impact of abrupt changes in the global macroeconomic and financial environment.” At the end of 2018, foreign reserves amounted to $78.46 billion.

According to Moody’s: “The Philippines is also buffeted by a number of headwinds, including food supply issues and global oil price volatility, that contributed to inflationary pressures in 2018. Based in part on the strong track record of Bangko Sentral ng Pilipinas (BSP) in maintaining monetary and financial stability, (we) expects inflation to trend towards the BSP’s target range in 2019. However, significant capacity constraints related to the Philippines’ topography, possibly persistent pressure on the currency and capital inflows, and a current account balance in slight deficit, pose material challenges to policymakers in ensuring that inflation expectations and inflation pressure are contained.”