Fitch raises Philippine credit rating to investment

It’s Maundy Thursday, but already it feels like Easter Sunday in the Philippines—at least as far as the ruling administration and business community are concerned.

The euphoric atmosphere in fact started on Holy Wednesday, the last day of work before Filipinos rushed to their home provinces or went on vacation with the families to celebrate Holy Week, when Fitch Ratings raised the Philippine credit rating to investment grade.

What was once known as Asia’s “perennial laggard” is now “taking off”, said President Benigno Aquino III, overjoyed that the upgrade would boost investment and lift the country’s long-term growth potential.

In a statement read by presidential spokesperson Edwin Lacierda on Wednesday at Malacañang, the presidential palace, Aquino III said he was pleased to hear that Fitch upgraded the status of the Philippines to BBB- from BB+.

“This means much more than lower interest rates on our debt and more investors buying our securities,” he stressed. “Greater access to low-cost funds gives us more fiscal space to sustain and further improve on social protection, defence and economic stimulus, among other [things].”

He added, “More companies in the real economy can now consider us an investment destination. Investment grade for sovereign debt should also lead to lower borrowing costs for Philippine companies in the international markets, consequently allowing for higher valuations for their securities.”

These developments would in turn enable industries to expand and create more jobs, fostering “a virtuous cycle of growth empowerment and inclusiveness that will redound to the benefit of Filipinos across all sectors of society”, as stressed by the president.  

One of the three major international debt watchers, Fitch credited the Aquino administration’s anticorruption programme, which is believed to have brought back investors confidence in the Philippines.

It also cited the role played by the previous administration of president Gloria Macapagal-Arroyo in improving the country’s fiscal management. “Improvements in fiscal management begun under President Arroyo have made general government debt dynamics more resilient to shocks,” Fitch Ratings said.

Ratings agencies Standard & Poor’s and Moody’s Investor Service have already elevated the Philippines’ credit rating, although a notch lower than Fitch’s.

“It’s an early Easter for the market,” said a fund manager, as quoted today by the Philippine Daily Inquirer, who was reacting to what the paper described as a “surprise catalyst” that made stocks rally just before the Lenten break.

The Philippine Stock Exchange index leapt 2.74 percent or 182.35 points to close at 6,847.47 yesterday. This was its best-ever performance, with an intra-day peak hitting 6,873.89.

The Philippine peso also edged higher against the US dollar, as the country has achieved a comfortable level of reserves that’s enough to cover at least four months worth of import requirements.

Reports quoting the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) said that the country’s dollar reserves, aided mainly by remittances from overseas Filipino workers (OFWs) and foreign investments in the business process outsourcing (BPO) sector, have grown through the years and now stand at about $84 billion.

In a statement, Fitch noted the economic resilience of the Philippines, a developing country that is now experiencing a level of foreign currency inflows that’s even better compared with those of many industrialised nations. It added that the inflow of foreign currency, coupled by dollar remittances from OFWs, has helped the country become a net external creditor.

Over the last five years, the Philippines has also had stronger and less volatile growth compared with its peers, with expectations that its GDP, or gross domestic product, will grow at an average of 5-5.5 percent in the coming years.

GDP, which is the sum of goods and services produced in an economy in a given period, measures the value of an economy.

Fitch noted that the Philippines’ good performance happened while prices of basic goods and services, as measured by the inflation rate, were kept relatively stable. Last year, consumer prices increased 3.2 percent, or within the 3- to 5-percent rate that the government considers manageable.

“The Philippine economy has been resilient, expanding 6.6 percent in 2012 amid a weak global economic backdrop,” Fitch said. “Strong domestic demand drove this outturn.”

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