JCRA concludes annual review of RP economy

The Japan Credit Rating Agency (JCRA) has concluded its annual review of the country’s economic performance and authorities are expecting a two-notch upgrade in outlook rating from "negative" to "positive".

Usually the most optimistic of the major credit rating agencies, JCRA has already met with Philippine officials in February.

According to the Investment Relations Office (IRO) at the Bangko Sentral ng Pilipinas (BSP), JCRA analysts wrapped up the review last week and examined the country’s macro-economic fundamentals shortly after the Arroyo administration lifted the state of emergency.

IRO executive director Rene Pizarro said Philippine officials already had indications of an upgrade when they met with JCRA officials during the roadshow.

"It will just be a validation of earlier expectations," Pizarro said. "A two-notch upgrade is not impossible."

A two-notch upgrade would outdo the three other major credit rating agencies, skipping the "stable" rating and going straight to "positive." Fitch Ratings and Standard & Poors have upgraded their outlook rating from "negative" to "stable" while Moody’s Investor Service has opted to defer any rating action for now.

Credit rating agencies give out their all-important credit rating on sovereign borrowers like the Philippines based on various indicators of default.

As a leading indicator, however, credit rating agencies also give out so-called outlook ratings to give the market a heads-up on whether a borrower was facing either an upgrade or a downgrade in its actual credit rating.

Pizarro said JCRA had expressed satisfaction over the increase in the value-added tax rate from 10 percent to 12 percent, marking an increase in revenues that could finally turn the tide on the country’s perennial budget deficit.

"They saw we have strong economic fundamentals and we have received a very good feedback from them," Pizarro said. "I wouldn’t be surprised if they upgrade us not just to stable but to positive."

If JCRA upgrades its outlook from negative to stable, it would put the country on its way to getting an actual credit rating upgrade back to BBB.

Of the four major credit ratings agency, only JCRA classified the Philippines as investment-grade. Fitch, Standard & Poors and Moody’s all consider the country as below-investment grade, about two-notches above from default grade.