S&P keeps PHL rating; upgrade unlikely
S&P Global Ratings has affirmed the Philippines’ credit rating anew in the face of robust domestic activity and sound fiscal footing, but flagged “rising uncertainties” under the newly installed Duterte administration and said “a higher rating is unlikely” in the next two years.
In a statement yesterday, S&P upheld the Philippines’ “BBB” rating — a notch above minimum investment grade — with a “stable” outlook and the country’s “A-2” short-term credit score.
S& P last affirmed the country’s rating on April 21 just as the Aquino administration was two months away from ending, and marks its first rating action for the country since President Rodrigo R. Duterte rose to power on June 30.
“The stable outlook balances the Philippines’ lower middleincome economy and diminished policy stability, predictability, and accountability against its strong external position, which features rising foreign exchange reserves and low and declining external debt,” the international debt watcher said in its statement.
S& P said the Philippines is “unlikely” to see a higher rating in the next two years.
While commending Mr. Duterte’s 10- point socioeconomic agenda, S&P pointed out the President’s nationwide crackdown on drugs could eventually erode trust in the justice system and democratic institutions.
“The President has a strong focus on improving ‘ law and order,’ which has allegedly resulted in numerous instances of extrajudicial killings since he came to power. We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to the legitimacy of the judiciary, media, and other democratic institutions,” the statement read.
As early as July, S&P had expressed concern over the spate of killings linked to the war on drugs that, to date, has claimed about 3,000 lives barely three months
into the new administration’s sixyear term.
Credit analysts also flagged risk from the Chief Executive’s perceived volatile national security and foreign policy pronouncements, saying: “The predictability of policy making in the Republic of the Philippines has diminished somewhat under the new presidency, in our view.”
Mr. Duterte lost a scheduled bilateral meeting with US President Barack H. Obama at the Association of Southeast Asian Nations summits in Laos early this month after he threatened stormy talks should the issue of human rights violations be raised during discussions. Mr. Duterte previously spewed expletives against the United Nations and the Pope, and, just last Tuesday, added the European Union to the list, complete with a flash of his middle finger.
Finance Secretary Carlos G. Dominguez III welcomed the maintained rating, but disputed S& P’s claims of weaker policy predictability under Mr. Duterte.
“The Duterte administration is loud and clear in its message,” the statement quoted Mr. Dominguez as saying.
“We want to achieve a kind of economic growth that is not only robust and sustainable, but one that actually lifts significantly more Filipinos out of poverty.”
BSP Governor Amando M. Tetangco, Jr. said in a separate statement that the affirmed ratings were a “testament that the country’s economic gains have been built from deeply rooted structural and sound policy reforms over the years” that “transcended” the change in the country’s leadership.
To be sure, the Philippines is expected to see sustained economic activity on the back of robust household consumption, strong investment flows and exports, steady remittances and an “adequately performing” financial system, the credit rater said.
The government’s plan to spend aggressively on infrastructure and social services is unlikely to lead to alarming fiscal deficits, S&P said, noting these gaps are expected to average 1% of gross domestic product (GDP) between 2016 and 2018, far short of the state’s 3% cap.
Such deficit outlook is expected to allow government debt to drop to 18% of GDP in 2019 from a peak of 28% of GDP in 2010 “which represents a ratings strength.”
The country is likewise expected to maintain a surplus in its net external payments position, ensuring sufficient buffer against financial volatility abroad.
“Uncertain conditions in export markets and inadequate infrastructure mainly in transportation and energy are the main downside risks to our growth outlook,” the debt watcher noted.
“Without the closure of infrastructure gaps and improvements in the business climate through greater political stability and regulatory reforms, the Philippines may not achieve middle-income status in 2017, where per capita GDP exceeds US$3,000.”
Looking ahead, the credit rater said sustained fiscal gains and more effective governance could bag the country an upgrade.
“We may raise the ratings if continued fiscal improvements under the new administration boost investment and economic growth prospects, or if improvements in the policy environment lead us to a better assessment of institutional and governance effectiveness,” S&P said.
“We may lower the ratings if, under the new administration, the reform agenda stalls or if there is a reversal of the recent gains in the Philippines’ fiscal or external positions.”
S&P expects Philippine GDP growth to log 6.1% this year and 6.3% in 2017, picking up from the 5.9% pace clocked in 2015. The local economy grew by 6.9% last semester, led by an investment surge and a one-time boost from spending ahead of the May 9 national elections.