To cement status as investment destination: Phl needs structural reforms – StanChart

MANILA, Philippines - After bagging two investment grades, the Philippines needs to institute structural reforms to cement its status as an investment destination, the country’s rating advisor said yesterday.

 â€œGoing forward, for the Philippines to move up the ratings scale, (rating agencies) will be looking at more reforms,” said Philippe Sachs, global head of the public sector client group at Standard Chartered Bank based in Singapore.

Although he did not go into specifics, Sachs said credit raters will look at “next generation of reforms” the Aquino administration may implement to drive tourism and foreign investments that will create more jobs.

In March, Fitch Ratings became the first debt watcher to upgrade the country to investment grade, putting it at BBB- from BB+, with a stable outlook. Standard & Poor’s Ratings Services (S&P) made a similar action this month.

Standard Chartered, which assists the government on engaging with S&P and Fitch, branded these moves “extraordinary,” noting that the Philippines has achieved the coveted status faster than usual.

On average, Sachs said a country rated BB+ with a positive outlook usually takes a year to be upgraded. “For the Philippines, it happened way faster at 133 days,” he said in a video conference.

The government, which enjoyed 11 positive credit rating actions since taking over July 2010, has vowed to reach investment status to attract more foreign investments, lower debt interest payments and open more credit avenues.

 â€œI think you managed to be the envy of neighboring countries. You have high growth, stable inflation, the banking sector is very sound and all in all the strong BOP…convinced the rating agencies that there is little downside risks,” Sachs explained.

The Philippines grew by an above-target 6.6 percent last year against the backdrop of slow 3.2-percent inflation. Large inflows overseas, meanwhile, helped buoyed the balance of payments (BOP) to a surplus of $9.236 billion.

In general, Sachs noted the Philippines has proven itself to be quite insulated to external shocks, and thus, that should no longer be an issue for credit raters.

But while growth has been remarkable, Sachs emphasized more needs to be done to increase income per capita – a measure of how growth has been distributed to the population – to the level of other BBB-rated peers.

One way to do this is to channel large inflows to the economy’s productive sectors such as infrastructure, tourism and manufacturing, said Standard Chartered Philippines chief Mahendra Gursahani.

 â€œThese are backbones of development (where) you need to do something that is unique,” Gursahani said.