Credit upgrade to boost FDI flow to Phl – DBS

MANILA, Philippines - The surprise credit rating upgrade received by the Philippines from Standard & Poor’s Ratings Services will further drive investments, DBS Bank said, noting the country remains a laggard in terms of attracting foreign direct investments in the region.

“The upgrade will help to lower borrowing costs, or at least cap some upward pressure in the near-term. Additionally, it also means that foreign investors will gain more confidence on investing in the economy,” Gundy Cahyadi, economist at DBS, said in an e-mail to The STAR yesterday.

 â€œThis is a good momentum to use for the government to attract more foreign investment into the economy. Note that FDI flows into the economy have been somewhat lagging that of the rest of the region,” he said.

Foreign direct investments surged by 20 percent to $3.86 billion last year from $3.215 billion in 2012, according to the Bangko Sentral ng Pilipinas.

Despite its improving investment climate and increasing investments, data from the Association of Southeast Asian Nations showed the Philippines trailed behind other economies in the region when it comes to FDI inflows.

Singapore received the highest net FDI inflow of $56.172 billion in 2012, followed by Indonesia with $19.853 billion and Thailand with $10.697 billion, latest data from the Asean website showed. Malaysia also enjoyed $9.4 billion in net FDI inflows in 2012, while Vietnam received $8.368 billion.

S&P on Thursday hiked the Philippines’ credit rating to BBB from BBB- with a stable outlook. The rating, which is a notch above investment grade, is the highest  received by the country so far.

The debt watcher said in its rating action report that it expects the reforms being implemented by the current administration to continue beyond 2016, after President Benigno Aquino steps down from office.

S&P also pointed out the Philippines’ strong macroeconomic fundamentals headlined by its stellar economic growth, and improved monetary and fiscal policy environment as key drivers for the rating upgrade.

Cahyadi, in a separate research note yesterday, said that the challenge for the country’s policymakers will be sustaining economic expansion which has hit 7.2 percent last year.

“Going forward, the challenge is to ensure sustainable growth in the longer-term. On the fiscal front, this will entail infrastructure and capacity building in the economy, particularly given that income level remains low,” he said.

 â€œOn the monetary front, a normalization of policy is crucial given that conditions have been extremely accommodative in the past couple of years,” he continued.

Cahyadi also noted markets will likely cheer S&P’s move, given that it was a direct rating upgrade and done without hiking the outlook first.