Lofty Economic Goals
The overwhelming mandate received by president-elect Ferdinand Marcos Jr. in the just-concluded elections has gifted him the right to steer the Philippines to nobler heights.
I can safely assume that Mr. Marcos and his incoming Cabinet will aspire for much higher economic goals given the trust he received from the majority of Filipinos. His leadership will focus on the economy to generate more jobs and lift millions of Filipinos out of poverty.
It may sound ambitious at this point given the challenges of the lingering pandemic, but one of the lofty economic goals is the pursuit of a sovereign credit rating of “A,” which is normally reserved for highly stable advanced economies. This is possible for the Philippines in the near term or in a couple of years.
The major debt watchers usually assess the credit scores of countries every six months. Before any actual adjustment, the agencies give a hint of what the rating may look like, usually in the form of positive, stable or negative outlook. A positive outlook indicates the credit rating may be upgraded, while a negative outlook indicates the opposite. A stable outlook means the rating may be maintained at the current level in the next six months.
The Philippines now enjoys a ‘BBB’ rating from Standard & Poor’s, one of the three major global rating agencies, along with Moody’s and Fitch. The ‘BBB’ rating is a notch above the minimum investment grade of ‘BBB-’ and two notches below the ‘A’ rating. These ratings refer to the borrower’s strong capacity to meet its financial obligations.
Moody’s assigned a ‘Baa2’ rating on the Philippines’s debt, while Fitch affirms its “BBB” rating on the country. Both ratings are just two scores below the elusive ‘A’ score. The next upgrade for the Philippines would be ‘BBB+’, the rating now enjoyed by our Southeast Asian neighbors Malaysia and Thailand. Indonesia currently has a similar ‘BBB’ rating, while Singapore has an outstanding ‘AAA’ credit score.
I am hopeful that the ‘A’ rating for the Philippines from any of the three major agencies is forthcoming. Japan Credit Rating Agency, although not part of the three major global agencies, has already granted the Philippines its first ‘A’ credit score as early as September 2021. It would not take long before other agencies follow JCR’s action, as the Philippine economy proved resilient during the pandemic.
What makes me confident on our economic prospects under the Marcos presidency is the assurance of Bangko Sentral ng Pilipinas Governor Diokno of no recession in the Philippines in the coming years. The economy registered a first quarter gross domestic product growth of 8.3 percent, in line with the government’s revised full-year growth target of 7 percent to 8 percent.
The shift to alert level 1, increasing vaccination rate and the reopening of face-to-face classes have been crucial in supporting domestic demand, cushioning the impact of external events and achieving our growth targets.
Convincing the rating agencies to grant us a credit score of ‘A,’ meanwhile, will require the government to continue its fiscal consolidation plan to pay off the P3.2 trillion worth of debt incurred during the pandemic. The national government’s outstanding debt reached a record P12.68 trillion as of end-March 2022.
While the Philippines’s debt-to-GDP level of 63.5 percent remains manageable, it now exceeds the internationally prescribed best practice of 60 percent of GDP. So we may need to do some belt-tightening measures in our fiscal program, without affecting our economic recovery plan that involves financing major infrastructure projects. I am glad the incoming administration agreed to continue infrastructure development, including those under the public-private partnership arrangements, which will help ease the financial burden of the government.
The tax reforms passed by Congress have yet to fully show their benefits, but the rating agencies welcomed these measures as something positive for the country. Hopefully, they will help us attain the ‘A’ rating.
The beauty of a credit score in the ‘A’ scale is that it will lump the Philippines together with highly stable economies. This will inspire confidence among investors to take a second look at the Philippines and encourage lenders and debt markets to provide favorable interest rates on the country’s public and private sector debts. The lower interest loans will reduce our borrowing costs and, thus, enable the government to manage its finances better.
The sovereign rating also affects the credit scores of Philippine companies and banks. So every segment of the economy will benefit from a higher credit rating.
Achieving a sovereign rating of ‘A’ or higher is just as important as being classified as an upper middle economy for the Philippines. In terms of real benefits, the former may even be considered more significant because it will help us pay our debt faster.
I hope that we will attain both in the next six years under the incoming administration. Most of the reform measures have been put in place by the Duterte administration to make sure we will graduate to a higher economic and credit status in this decade.
The incoming administration is in a great position to attain these noble economic goals, which I hope, will translate into better quality of life for all Filipinos.