The government is working towards achieving an A credit rating, hopefully within the next two or three years, as the country is expected to soon transition to upper middle income status, with only a two-year grace period left to avail of lower interest rates granted to lower middle income economies.
Carlos Dominguez, Department of Finance (DOF) secretary, said in a press conference at the DOF building in Manila last Friday the entire economic team is working on the roadmap to an A credit rating.
“We mean to address the need for us to improve our credit rating because we’re going to (lose) our special interest rates since we will be graduating already to upper middle income status, so we have to make sure that the differentials in the interest rates will be lessened with the credit upgrade,” Dominguez said.
“I cannot tell you how soon (we will achieve this), but we have to take certain action to do this,” he added.
Dominguez said among the actions being taken is the implementation of the tax reform program.
“In order to increase our tax revenue as a percentage of GDP (gross domestic product), that’s very important, that’s a very important factor, also to make sure that our GDP is growing faster than our loans so that we don’t reach 42 percent debt-to-GDP ratio, so those are the programs we have to keep an eye on,” he said.
“That’s why our tax reform is so important, and we’re very happy that the legislature is seeing their way to supporting us,” he added.
Asked if the government is hoping to achieve the A credit rating ideally within the next two to three years, Dominguez said: “Oh yes, that’s exactly why we’re working hard, so that it mitigates the jump in borrowing cost.”
With the Philippines’ forthcoming elevated status as an upper middle income economy, the government expects that the cost of money is going to be higher because the country will no longer qualify for the lower interest rates for poorer countries.
This refers to low lending rates granted by development partners to countries classified as low income and lower middle income economies.
The country however will still have a two-year grace period to avail of lower interest rates once the Philippines transitions to upper middle income level.
Government officials earlier said the country will fast track its borrowings from other countries, such as Japan, over the next two years to take advantage of lower interest rates granted to lower middle income economies.
Ernesto Pernia, socioeconomic planning secretary, previously said the government may consider adjusting its borrowings to continue to take advantage of lower interest rates granted to lower middle income economies, as well as prioritize projects that are more costly than others.
“It’s now accelerating considerably (implementation of projects) given that we’re going to be an upper middle income country next year, we really have to fast track the approval of the projects, especially in terms of funding so we can avail of concessional (breaks),” Pernia said.
“I think we have only up to 2022 to 2023 to do that, so that’s one motivation we have in terms of rushing, getting more ICC (investment coordination committee) meetings to get projects going,” he added.