S&P: Invest grade stays

Saying the economy is “rebounding healthily,” US-based credit watchdog Standard and Poor’s Global Ratings maintained the country at two notches above investment grade while at the same time rendering a stable outlook.

In a report released yesterday, S&P affirmed its “BBB+” long-term and “A-2” short-term sovereign credit ratings on the Philippines. The outlook on the long-term rating remains stable.

The economy is rebounding healthily, spurred by strong domestic demand as the country lifts mobility restrictions and fully reopens.

“Temporarily weakened debt and fiscal metrics are likely to stabilize. We expect improvements as the economy continues to recover,” the rating firm indicated.

The stable outlook reflects S&P’s expectation that the economy will recover and fiscal deficits will decline significantly over the next two years.

Downside scenario

“We may lower the ratings if the economic recovery falters, leading to a significant erosion of the country’s long-term trend growth, or an associated deterioration of the government’s fiscal and debt positions beyond projections,” S&P said.

Indications of downward pressure, according to the debt watcher would be a sustained annual change in the net general government debt that is higher than four percent of GDP and the general government net debt stock exceeding 60 percent of GDP, or interest payments exceeding 15 percent of revenue on a sustained basis.

Persistently large current account deficits leading to a structural weakening of the Philippines’ external balance sheet would also indicate further downward pressure on the ratings, it added.

Upside scenario

We may raise the ratings if the economy recovers much faster than we expect, and the government achieves more rapid fiscal consolidation. We may also raise the ratings if institutional settings, which contributed to a significant enhancement in the Philippines’ pre-pandemic credit metrics over the past decade, further improve.