R&I upgrades PHL credit rating to ‘A-’

Japan-based Rating and Investment Information, Inc. (R&I) upgraded the Philippines’ investment grade rating to “A-” amid the country’s strong economic performance.

“Based on macroeconomic stability and high economic growth path as well as expected continuous improvement in fiscal balance, R&I has upgraded the Foreign Currency Issuer Rating to ‘A-,’” it said in a document posted on its website.

This was one notch up from the country’s previous rating of “BBB+” assigned in August a year ago.

The credit rater also assigned a “stable” outlook for the Philippines from “positive” previously. According to R&I, a positive or negative outlook is not a statement indicating a future change of a rating. If neither a positive nor negative outlook is appropriate, it assigns a stable outlook.

“The Philippine economy will likely see stable growth and continuous improvement in the level of national income against the backdrop of active public and private sector investments, development of domestic business sectors such as business process outsourcing, and favorable demographics, among other elements,” R&I said.

The Philippine economy expanded by 6.3% in the second quarter, the fastest in five quarters or since 6.4% in the first quarter of 2023.

“The Philippine economy has been showing fast growth among the major economies in Southeast Asia,” it added.

At 6.3%, the Philippines’ second-quarter gross domestic product (GDP) growth was the second fastest in Southeast Asia, only behind Vietnam (6.9%) and ahead of Malaysia (5.8%) and Indonesia (5%).

The government is targeting 6-7% growth this year and 6.5-7.5% for 2025.

R&I also noted the country’s improved fiscal management as debt remains “affordable, given the manageable burden of interest payment.”

“The fiscal balance as a share of GDP, which had deteriorated during the COVID-19 (coronavirus disease 2019) pandemic, has improved and the government debt ratio will likely start falling in a year or two,” it added.

As of the second quarter, the government’s deficit-to-GDP ratio stood at 5.3%, still below the 5.6% deficit ceiling set for this year.

Meanwhile, the debt-to-GDP ratio eased to 60.9% in the second quarter from 61% a year earlier. It is expected to ease further to 60.6% by end-2024.

R&I also said that the Philippines’ current account deficit is also “not necessarily a negative element” in its assessment.

“The foreign exchange reserves stand at a sufficient level in comparison with that of imports. Despite the liabilities in excess of financial assets of international investment position, the gap between liabilities and assets remains at a low level relative to GDP. R&I, thus, believes that the external risk is limited.”

The central bank projects a USD 4.7-billion current account deficit for 2024, equivalent to 1% of GDP. The current account deficit stood at USD 1.7 billion in the first quarter, equivalent to 1.6% of GDP.

Meanwhile, Finance Secretary Ralph G. Recto said in a statement that this was the Marcos administration’s first credit rating upgrade.

“Our refined Medium-Term Fiscal Program is our blueprint for our ‘road to A rating,’” he said.

“This ensures that we can reduce our deficit and debt gradually in a realistic manner, while creating more jobs, increasing our people’s incomes, growing the economy further, and decreasing poverty in the process. Sticking to this program can help us get there faster.”

The Department of Finance said that improved credit rating from R&I will help attract foreign investors and access more affordable borrowing terms.

“This allows the government to channel funds that would have otherwise been allotted for interest payments towards more development programs such as more infrastructure projects, improved social services, better healthcare system, and quality education.”

The Bangko Sentral ng Pilipinas (BSP) said that the credit upgrade means lower credit risk which “allows a country to access funding from development partners and international debt capital markets at lower cost.”

“The BSP is committed to delivering on its mandate of promoting price stability, financial stability, and a safe and efficient payments and settlements system as this broadly supports sustained and inclusive economic growth,’’ BSP Governor Eli M. Remolona, Jr. said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the latest credit upgrade puts the Philippines three notches above the minimum investment grade rating.

“This is already similar and somewhat moved in line with the ‘A-’ credit rating given by another Japanese credit rating agency, JCR,” he added.

The Philippines currently holds a “A-” rating from the Japan Credit Rating Agency (JCR), “BBB” from Fitch Ratings, “Baa2” from Moody’s Ratings, and “BBB+” from S&P Global Ratings.

The government is targeting to achieve an “A” level rating before the end of the administration. – Luisa Maria Jacinta C. Jocson, Reporter