JCR affirms Philippine’s rating, stable outlook

MANILA, Philippines — Tokyo-based Japan Credit Rating Agency Ltd. (JCR) has affirmed the A-credit rating and stable outlook of the Philippines despite the delayed economic recovery due to mobility restrictions from rising COVID cases.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno announced via Viber the decision of the international credit rating agency to reaffirm the country’s credit rating.

The Philippines achieved the A grade rating in June last year after JCR upgraded the country’s credit rating to A- from BBB+.

In affirming the country’s credit rating, JCR said in a statement issued Monday afternoon that “the ratings mainly reflect the Philippines’ high and sustainable economic growth performance underpinned by solid domestic demand, as well as its resilience to external shocks, supported by an external debt kept low relative to gross domestic product (GDP).’’

The Tokyo-based debt watcher also cited the Philippines’ strong foreign exchange buffer, the government’s solid fiscal position and sound banking sector.

JCR said the Philippine economy may grow by only four to five percent in 2021 due to the resurgence of COVID infections since the middle of the year.

“The economic growth in 2021 may prove slow at four to five percent due to the resurgence of the pandemic since the middle of the year. Once the pandemic gets subdued, however, the country’s potential growth will recover and the economy is expected to return to a high growth path,” it said.

At the moment, JCR noted that recovery of economic activities is being delayed due to restrengthened mobility restrictions forced by the resurgence of COVID cases due to the Delta variant.

However, the credit rater said the government has been swiftly implementing adequate measures such as increased public health-related expenditures, acceleration of vaccination and continuation of employment program by drawing upon its relatively strong fiscal position before the pandemic.

“JCR does not consider that the fiscal soundness will be impaired because while the fiscal deficit has widened, the support package at this time is backed by appropriate fiscal policies and the government debt will remain comparatively subdued,” it said.

The debt watcher sees the Philippines’ debt-to-GDP ratio staying at 50 percent despite the projected lower budget deficit.

It also cited the country’s robust foreign exchange buffers with the gross international reserve (GIR) hitting $107.2 billion in end-July, equivalent to 7.7 times the short-term external debt.

“These demonstrate the robustness of the country’s foreign currency liquidity position. Therefore, JCR holds that the country will show its high resilience even when global risk-off moves are triggered again,” it said.

Nicholas Mapa, senior economist at ING Bank Manila, said the Philippine economy remains stuck in recession amidst the ongoing Delta wave while daily infections average roughly 20,000 cases a day.

Despite posting an outsized second quarter year-on-year growth, Mapa said overall economic output has stayed subdued, weighed down in large part by mobility restrictions but now increasingly due to so-called scarring effects as the recession drags on for a second year.

“2021 was previously touted to be a “bounce back year” but several months into this year it has become quite clear that the Philippines is now a shell of its former economic prominence,” Mapa said.

Mapa pointed out several economic indicators continue to flash warning signs of red with almost all subsectors of the economy creaking under the weight of the protracted downturn in activity.

“Initially, we had thought that a return to growth would be seamless with a possible temporary pause to the juggernaut growth a mere intermission for a better second act. The intermission unfortunately continues without end as scarring effects now apparent with the Philippine economy likely giving up all the gains of yesteryear with much hoped-for return to pre-pandemic levels of GDP pushed back to three years after the whole pandemic began,” the economist said.