The Duterte administration’s bold infrastructure agenda and efforts for tax reform, alongside robust economic growth and strong external payments position, helped the Philippines earn a “positive” outlook on its investment grade credit ratings.
RAM Ratings, with headquarters in Malaysia and whose opinions serve as guide for investment decisions of corporate entities mostly from Asia, has announced that it upgraded its outlook on the Philippines’ credit ratings from “stable” to “positive.”
In a statement, RAM said: “The positive outlook… reflects stronger-than-expected GDP performance in 2016 and growing FDI [foreign direct investments] despite a change in administration.”
The Philippine economy grew by 6.9 percent in 2016, thus remaining among the fastest growing in Asia and the world. Growth momentum continued this year, averaging 6.4 percent in the first half and settling at 6.5 percent in the second quarter. Growth in the second quarter marked the economy’s 74th consecutive quarter of uninterrupted growth since 1999.
“Continuous efforts to reduce red tape, simplify regulations and streamline business processes bode well for investors, having led to improved competitiveness and ease of doing business rankings,” RAM added.
It also recognized “vast accumulation of official reserve assets,” which lends support to the country’s external payments position, the government’s efforts to “broaden its revenue-generating capacity [while making] the tax regime more progressive,” and “the pace of infrastructure spending [that] is anticipated to be faster than [in] the previous administration.”
A “positive” outlook means that the Philippines’ existing global scale rating of BBB3 and regional scale rating of A1 from RAM have chances of getting upgraded over the short term.
BBB3 is the minimum investment grade, while A1 is four notches away from the highest rating of Triple A.
Global rating reflects a country’s perceived creditworthiness compared with countries from around the globe, while regional rating shows comparison vis-a-vis Southeast Asian neighbors.
“The positive outlook from RAM Ratings is another confidence vote in the Duterte administration’s resolve to grow the Philippine economy and achieve financial inclusion through the ‘Build, Build, Build’ program while maintaining fiscal discipline and ensuring this infra buildup’s sustainability via a comprehensive tax reform program (CTRP),” Finance Secretary Carlos Dominguez III said.
“Through sustained massive public investments in infrastructure and social services over the medium term, the government aims to accelerate poverty reduction, attract more investments, create enough jobs and transform the country into an upper middle-income economy by the end of President Duterte’s term in 2022,” Dominguez added.
Under the “Build Build Build” program, dubbed as the country’s boldest infrastructure agenda thus far, the administration targets to spend between P8 trillion and P9 trillion on roads, railways, airports, seaports, and other big-ticket infrastructure projects until the end of its term in 2022. Also, government infrastructure spending will rise continually from 4.5 percent of GDP in 2016 to 7.3 percent in 2022.
Funding support is expected to come in part from proceeds of the CTRP, the first package of which was passed by the Lower House in May and is targeted to be passed by the Senate before the end of the year. The first package – which seeks to cut personal income tax, increase excise tax on oil and automobile, and impose tax on sugary products – is estimated to generate P133.8 billion in net revenues for the government in the first year of implementation.
Meantime, BSP Governor Nestor Espenilla, Jr. said the country’s strong external payments position, as recognized by RAM, will remain robust over the medium term.
“The country’s external payments position, which lends strong support to the country’s investment grade credit ratings, is expected to remain strong in the years ahead on account of significantly rising FDIs, underpinned by sustained inflows in remittances and growing tourism receipts,” Espenilla said.
“The country’s enabling environment, highlighted by the full liberalization of the banking sector, is encouraging more foreign banks to operate in the Philippines and, therefore, help bring in more job-generating investments,” Espenilla also said.
Espenilla added that the Bangko Sentral ng Pilipinas will continue to target low and stable inflation, prudently manage the country’s external accounts, and observe sound banking supervision, in addition to implementing major financial sector reforms to complement government efforts toward the goal of a more inclusive, upper middle income economy
RAM said sustained momentum of robust economic growth, rising FDIs, as well as successful implementation of tax reform and rollout of key infrastructure projects may lead to actual upgrade of the global and regional ratings of the Philippines. | via DOF