Chinese debt watcher China Lianhe Credit Rating Co. Ltd. has affirmed the triple ‘A’ long-term issuer rating of the Philippines, the Bangko Sentral ng Pilipinas’ (BSP) Investor Relations Office (IRO) yesterday said.
In a statement, the IRO said this latest rating action from Lianhe bodes well for the Philippines’ ability to continue accessing financing from Chinese investors, such as via sale of government bonds, at low interest rates. The Philippine government had issued Panda bonds as part of its efforts to diversify funding sources.
According to Lianhe’s sovereign credit rating methodology, a “AAA” rating indicates that a creditor has extremely strong capacity to pay its financial commitments; is highly unlikely to be affected by adverse economic conditions; and has the lowest expectation of default risk.
The Chinese debt watcher also affirmed the “stable” outlook on the rating, which signals a low likelihood of a rating change over the short term.
In its latest report on the Philippines released on July 28, Lianhe that the Philippines, like many countries across the globe, suffered a recession because of the pandemic.
Nevertheless, it said, the Philippines has kept the impact of the pandemic on its finances manageable– aided in part by revenues generated from tax reforms–and is headed toward recovery.
“Although the fiscal deficit widened further, government debt remained within acceptable threshold… Looking forward, the Philippines’ economic and fiscal performances are expected to recover in 2021 and 2022 on the back of gradually easing pandemic and continuous tax reforms,” Lianhe said.
It expects the Philippines to have a gross domestic product growth rate of around seven percent in 2021 and 2022.
In its rating report, Lianhe cited the following strengths of the Philippine economy: cash remittances from overseas Filipinos and revenues from information technology and business process management industry showed resilience amid the pandemic, contributing to the country’s ability to earn foreign exchange; external debt remained at a low level, and the capacity to repay these obligations is underpinned by ample current account receipts and foreign reserves; long track record of fiscal prudence with government debt maintained within acceptable threshold despite a sharp increase in 2020; and stable source of repayment from increasing government revenues.
Lianhe also noted the Philippines’ relatively low external debt and rising government revenues, which the country’s finance officials attribute to recent tax reforms such as the Tax Reform for Acceleration and Inclusion and the sin tax measures.
“The debt structure of the Philippines remains relatively stable in 2020. Ample domestic liquidity has allowed the country to source from domestic markets to fund the majority of its financing requirements while minimizing foreign exchange risks. Domestic debts accounted for 68.3 percent of the total at end-2020,” the rating agency said.
It also noted that “the continuous implementation of comprehensive tax reform has improved fiscal sustainability of the Philippines against the background of the COVID-19 pandemic…The Philippines will return to fiscal consolidation when the adverse impact of the pandemic abates, and the economy will resume its long-run average growth path.” Angela Celis
