Phl on way to investment grade status next year

MANILA, Philippines - The Philippines is well on its way to achieving investment grade status next year, an investment bank said in a new report released yesterday.

In its Daily Breakfast Spread, Singapore-based DBS Bank Ltd. cited the government’s “impressive” debt and deficit management in the first two years of the Aquino administration.

“Therefore, it is not surprising that it won multiple upgrades from credit rating agencies over the past two years,” DBS said.

“An investment grade rating is definitely a possibility in 2013,” it added.

Bangko Sentral ng Pilipinas deputy governor Diwa Guinigundo agreed with DBS’ projection, saying in a text message that an investment grade is “just a matter of time.”

“We are in the right direction and everybody agrees. The last remaining issue is sustainability. We are showing what we can do. It is just a matter of doing it and replicating it quarter after quarter,” Guinigundo explained.

The Aquino administration has been batting for an investment grade which if granted, is expected to lower our borrowing costs and boost foreign investments entering the country. It also indicates strong government capability to pay its debts.

So far, the country’s highest credit rating came from Fitch Ratings and Standard & Poor’s Ratings

Services, which rank us one notch below investment grade with stable outlooks. The other major debt watcher, Moody’s Investors Service, put us two rungs below but with a positive forecast, which means an upgrade is possible in the next 12 to 18 months.

In the report, DBS pointed to the national government debt, whose proportion to gross domestic product (GDP) has declined from a high of 74.4 percent in 2004 to a 13-year low of 50.9 percent by end last year.

GDP is the sum of all products and services created in an economy. A lower debt-to-GDP ratio indicates that the country has more resources to settle its obligations. Latest data showed the debt-to-GDP ratio further dipped to 50.5 percent as of the first semester.

Foreign liabilities have also dwindled “in part due to the strength of the peso,” DBS said, thus reducing the state’s foreign exchange risk. As of July, the report said foreign obligations just accounted for 35.8 percent of outstanding debt from 39 percent in early 2011.

The national budget has also been managed well, it said, with the deficit expected to fall to just 2.4 percent and two percent of GDP this year and the next, respectively. Last year, deficit-to-GDP ratio hit two percent of economic output.

“Moreover, foreign reserves actually rose over the course of this year despite the slowing of inflows into Asia that resulted in many countries actually seeing foreign reserves stagnate or even decline,” the report said. Reserves amounted to a record-high of $80.777 billion as of August, data showed.

“A solid (first half) economic growth figure and strong external finances are key reasons for attracting continued inflows,” it added.

The local economy grew by 6.1 percent as of June, slightly above the government’s five- to six-percent target for the year.