Japan credit rater bullish on Philippine growth this year

MANILA, Philippines — The Philippine economy is likely to grow by six percent this year, mainly driven by robust private consumption amid easing prices and stable remittances, Japan Credit Rating Agency Ltd. (JCR) said.

Its latest growth forecast, however, is still below the government’s 6.5 to 7.5 percent target for this year.

“JCR believes that the growth rate in 2024 will be around six percent, supported by a recovery of external demand and tourism demand, and solid private consumption underpinned by a subdued rise in prices and stable flow of remittances from overseas Filipinos,” it said.

The Philippine economy grew by 5.6 percent in 2023, one of the fastest growing economies in the region. It surpassed the economic expansion of China (5.2 percent), Indonesia (5.1 percent), Vietnam (5.1 percent), Malaysia (3.7 percent)  and Thailand (1.9 percent).

According to the debt watcher, the 2023 GDP was supported by good employment conditions, robust remittances from overseas Filipino workers and growth in fixed capital formation due to upbeat investments in infrastructure.

“Infrastructure investment to GDP  is estimated to have reached 5.8 percent in 2023,” JCR said.

It also said  that the Philippines’ first sovereign wealth fund or the Maharlika Investment Corp., which began operations this year, would boost infrastructure investments in the country.

Meanwhile, JCR affirmed the Philippines’ investment-grade credit rating of A- on Wednesday, citing a stable outlook for the country in the coming years.

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.

“The ratings mainly reflect the Philippines’ high and sustained economic growth supported by solid domestic demand, a low-level external debt, its resilience to external shocks supported by accumulated foreign exchange reserves, and its solid fiscal base,” it said.

It also observed that the government’s debt-to-GDP ratio at the end of 2023 was around 60 percent, one of the lowest among the sovereigns rated in the A- range.

“The fiscal consolidation being promoted by the Marcos administration, which took office in June 2022, based on the medium-term fiscal framework is producing good results. Hence, JCR believes that the government will maintain its fiscal soundness,” it said.

The debt watcher also cited the Philippines’ robust foreign currency liquidity position.

“JCR holds that the Philippines will show its high resilience even when global risk-off moves are triggered again,” it said.

In a separate statement, Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. welcomed JCR’s affirmation of the Philippines’ investment-grade credit rating.

“Our external payments position will continue to remain manageable, supported by sustained foreign exchange inflows from overseas Filipino remittances, business process outsourcing revenues, foreign direct investments, and tourism receipts. In addition, the country maintained ample foreign exchange reserves,” he said.

Finance Secretary Ralph Recto said the rating action is highly encouraging and shows that the government is on track in achieving a “growth-enhancing” fiscal consolidation.

“Having a high credit rating is a major win for all as this means that the Philippines can have more access to cheaper financing from our development partners and the international capital markets,” he said.

A high credit rating would also attract more foreign direct investments in the Philippines, boosting employment opportunities for Filipinos, Recto said. It also sends a signal of confidence to investors and creditors.

“This allows the government to channel funds that would have otherwise been allotted for interest payments towards more development programs such as more infrastructure projects, improved social services, better health care system, and quality education,” he said.