Another S&P rating upgrade looms — ING

Dutch financial giant ING Bank said the likelihood the Philippines would get another credit rating upgrade from S&P Global Ratings over the next two years is high.

Joey Cuyegkeng, senior economist at ING Bank Manila NV, said S&P’s decision to raise the country’s outlook to “positive” from “stable” and the affirmation of the credit rating of BBB or a notch above minimum investment grade was due to a relatively strong external payments position and policies that enhance the fiscal sector and prospects for balanced and strong growth.

“The likelihood of an upgrade to BBB+ in 12 to 24 months is high,” Cuyegkeng said.

He said the debt watcher recognizes that the current account may post a slight deficit through 2021.

The market expects a current account of -0.7 percent of gross domestic product (GDP) this year before receding to -0.1 percent of GDP by 2020.

“We are less optimistic and expect the widening trade gap in the next five years to lead to an average

current account of -1.2 percent of GDP with an average GDP growth of 6.8 percent,” he said.

He said investors would likely regard the expansion of the country’s domestic capacity and potential output as outweighing a moderate deterioration of the current account.

Furthermore, Cuyegkeng said the outlook upgrade recognizes a more important development that the monetary and fiscal policy environment has improved.

“Financial and fiscal reforms are positive strides toward a higher growth path and a more sustainable fiscal sector. Notwithstanding the inflation pain that the recent tax reform temporarily inflicted on the economy, the reform measure has enhanced revenues, allowing the government to pursue accelerated infrastructure spending and enhanced fiscal stimulus,” Cuyegkeng said.

The economist added that a more solid execution of the infrastructure program would be favorable.

He said monetary policy reforms also cut intermediation costs and enhance financial stability.

“We believe that the contin- ued pursuit of such reforms would be successful and avoid downside risks to the country’s credit rating,” he said.

“The Duterte administration has broadly retained the fiscal and economic development policies of the previous administration, although it has pursued more-aggressive expenditure plans,” S&P said.

In acknowledging the gains in the policy environment in the Philippines, S&P cited the tax reform program under Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law that took effect in January, and the Build Build Build program, under which massive investments in infrastructure are set.

Proceeds from the tax reform will partly fund the infrastructure projects, estimated at about P8.4 trillion over the next five years up to 2022.

Moody’s Investors Service and Fitch Ratings have assigned a notch above minimum investment credit rating for the Philippines.