International debt watcher S&P Global has affirmed the Philippines’ investment grade credit rating of BBB+ with a stable outlook, in a vote of confidence that the country continues to enjoy favorable medium-term growth prospects despite challenges posed by COVID-19.
The Philippines’ BBB+” rating with S&P is the highest among its ratings with other international debt watchers.
The Philippines is rated one notch lower at “BBB” by Fitch Ratings and its equivalent Baa2 by Moody’s Investors Service.
S&P’s rating is also a step away from the minimum rating within the stellar A territory. The stable outlook indicates the absence of factors that could trigger an upward or downward adjustment in the rating over the short term.
“[W]e believe the Philippines will continue to have good economic recovery prospects once the COVID-19 pandemic is contained, and that the government’s fiscal performance will strengthen accordingly,” S&P said.
S&P forecasts that the Philippine economy will grow by 7.9 percent this year, which marks a solid rebound from last year’s contraction and is higher than the government’s own projection of 6.0 to 7.0 percent.
“Despite the unprecedented economic shock, the Philippine economy remains among the fastest growing in the world on a 10-year weighted average per capita basis. The country has a relatively diversified economy with a strong track record of high and stable growth–a reflection of its supportive policy dynamics and improving investment climate,” S&P said.
S&P acknowledged that the Philippines entered the pandemic in a position of strength, owing in part to its sound fiscal situation.
“The Philippines government has generally enacted effective fiscal policies over the past decade, marked by improvements to the quality of expenditure, manageable fiscal deficits, and low levels of general government indebtedness. This track record of sustainable public finances helped the government accumulate fiscal space to respond to the pandemic,” it said.
Despite the disruptions to business activities caused by the pandemic, S&P noted the manageable impact on corporate balance sheets and cited the country’s healthy financial sector.
“The Philippine economy’s constructive medium-term trajectory is underpinned by solid household and company balance sheets, sizable inward remittance flows, and an adequately performing financial system. Prior to the outbreak of COVID-19, the country’s unemployment rate had been declining for a few years, signaling strengthening labor market even as the working-age population continued to grow,” it said.
S&P also recognized the strength of the country’s external payments position, as evidenced in part by its hefty gross international reserves (GIR), which amounted to about $110 billion as of end-2020.
“A key rating strength for the Philippines is the country’s external position; the peso’s strength and the Philippines’ rising foreign exchange reserves in the current economic and health crisis are testaments to its external resilience,” S&P said.
The debt watcher also credited the Philippines for its strong financial sector oversight.
“Philippine banks benefit from being mainly deposit-funded, with high liquidity and limited linkages to global markets. The strengthened oversight of the financial sector by Bangko Sentral ng Pilipinas, combined with modest growth in private sector debt and real estate prices, has also contributed to improved system stability in recent years,” it said.
The debt watcher also cited the government’s reform agenda, as backed by various laws signed and bills pushed, and the continued drive for infrastructure development under the “Build, Build, Build” program. Both are seen to support robust economic growth of the Philippines over the medium to long term.
