Vote of Confidence
Three international institutions have recently expressed their confidence in the Philippine economy despite the major challenges hounding the global environment.
One of the major debt watchers, Rating and Investment Information Inc. (R&I) of Japan, upgraded the credit rating of the Philippines by a notch to “BBB+” with a stable outlook from BBB. Another upgrade would qualify the Philippines for the coveted “A” rating, which is usually reserved for the most advanced and stable economies in the world.
R&I said the upgrade was based on its assessment of the Philippines’s positive growth performance and prospects on the back of the government’s infrastructure development drive and its ability to keep its fiscal condition healthy. R&I also recognized the improving socio-economic climate in the Philippines.
“The Philippines’s economy continues to grow, driven by aggressive public investment under President Rodrigo Duterte’s administration,” R&I said.
R&I made the announcement on February 6, 2020, despite the major external and internal challenges, such as the spread of the COVID-19 and the Taal Volcano unrest. This IS clearly a vote of confidence in the Philippine economy under President Duterte’s leadership.
The strong political and economic stability that we experienced last year summarizes the Philippine story. Remember that our gross domestic product (GDP) expanded 5.9 percent in 2019, one of the fastest in Asia, while the inflation rate settled at a manageable 2.5 percent, which was within the government’s target range. The combination of rapid economic growth and stable consumer prices likely lifted more Filipinos out of poverty last year following an already substantial improvement between 2015 and 2018.
Data from the Philippine Statistics Authority showed the unemployment rate eased to 5.1 percent in 2019, the lowest since 1981, while poverty incidence declined to 16.6 percent in 2018 from 23.3 percent in 2015. This means 5.9 million Filipinos were lifted out of poverty over the three-year period. It is also in line with the government’s goal to reduce the poverty incidence to 14 percent by 2022.
R&I also looked at these indicators in deciding on the latest upgrade. “While the unemployment and poverty rates are falling, per-capita gross national income is rising at a solid pace,” the Japanese firm said.
Another credit watcher, Fitch Ratings, adjusted its BBB credit rating outlook for the Philippines from “stable” to “positive” on February 10, 2020. The positive outlook from Fitch signals that a possible upgrade to BBB+ could happen in the next 12 to 18 months.
Fitch recognized the Philippines as among the fastest-growing economies in the Asia-Pacific region, saying it expects the GDP to grow by 6.4 percent this year and 6.5 percent in 2021. It noted the Philippines’s sound economic policy, as shown by the government’s healthy fiscal position and implementation of tax reforms.
Meanwhile, the International Monetary Fund said the Philippines was in a good position to weather various global economic risks and expects GDP to grow by 6.3 percent in 2020. “The Philippine economy ranks among the best performers in Asia in recent years,” it said.
The IMF said the latest assessment for the Philippines’s medium-term economic outlook remained “favorable, especially if the strong structural reform momentum continues.”
I believe that we will continue to grow by at least 6 percent annually over the next three years under the Duterte administration and may achieve A credit rating status soon. Such a rating would enable us to attract more investors, and obtain loans for infrastructure projects at more favorable rates. In the world of finance, the most credit-worthy nations obtain the lowest interest rates.
BSP Governor Benjamin Diokno says “given significant improvements in the country’s macroeconomic conditions, which are made possible in part by a favorable inflation environment and a sound financial system, hitting an A scale rating from R&I and the other debt watchers within the next two years is achievable.”
Diokno noted that an A rating would translate into lower borrowing costs for the government and ordinary citizens. This simply means the government’s “savings” from reduced borrowing cost may be used to fund more roads, urban transport, mass housing, education and health services, and social welfare.
These positive economic developments partly explain Duterte’s rising popularity. It is essential that a leader is respected, and loved so that stability and calm will ensue in the face of several challenges.