Japan debt watcher affirms Philippines 'A' rating

MANILA, Philippines — The Japan Credit Rating Agency affirmed the Philippines’ investment-grade rating, on the back of the domestic economy’s rebound from the pandemic.

In a statement on Friday, JCR kept the country’s investment-grade credit rating at “-A,” deeming it with a stable outlook. The rating was underpinned by resurgent consumer spending and the “resilience” of the domestic economy towards external headwinds.

A credit rating is a measure of an entity’s capacity to settle its debts. The higher the rating, the better the perception of investors on a borrower, and therefore the lower the interest charge on debts.

JCR’s ratings matter to Japanese companies, the country's top investors.

This development came as the economy reopened towards the end of 2022, which fueled brutally-high inflation amid a recovery in demand while supply problems persist. This, in turn, compelled the Bangko Sentral ng Pilipinas to hike interest rates to temper consumer spending and credit growth. 

JCR’s affirmation indicated the Philippines’ robust foreign currency liquidity position. It noted that the Philippines was able to keep its external debt low, unsurprising since the national government often to domestic creditors to avoid forex swings.

The Japan-based credit watcher likewise lauded the country’s dollar reserves.

The credit watcher pointed out the debt-to-gross domestic product ratio fell within the 50% range. JCR indicated that this was among the lowest ratios within those rated in the A-range. 

“JCR holds the view that the country will show its high resilience even when global risk-off moves are triggered again,” the statement read. 

Latest data showed that the Philippines’ debt-to-GDP ratio, a gauge of the government's ability to settle its liabilities, settled at 60.9% in 2022. This was slightly higher than the 60.5% ratio recorded at the end of 2021.

Despite JCR’s affirmation, the country is still within arm’s reach of a credit downgrade as the levels were slightly above thresholds deemed manageable.

The credit watcher lauded the country’s banking sector which was able to keep its books healthy by keeping non-performing loan ratio down to 3.2% by the end of 2022. 

Despite this, JCR spotlighted the need to trim income disparity by way of developing rural regions. 

The Department of Finance welcomed the development since the Philippines was able to maintain its status as an investment destination.

“A credit rating of A- with a stable outlook indicates lower credit risk and entails better access to the international bond market and favorable interest rates. Moreover, it increases investor confidence in the country that may lead to more foreign direct investments,” the DOF said in a statement.