The Philippines has nabbed the much-coveted “A” credit grade, with the Japan Credit Rating Agency (JCR) upgrading the country’s rating to “A-” with a stable outlook.
The rating was a notch higher than the BBB+ the Philippines previously held while the outlook meant it will likely be maintained in the near term.
JCR said in a report released Thursday that it gave the Philippines a higher grade amid the country’s resilience despite a pandemic that has tempered growth, impaired fiscal positions, and hurt credit ratings of economies across the globe.
It said the decision came on the back of its assessment that the impact of the coronavirus disease on the domestic economy and the government’s fiscal standing will be temporary, given the country’s strong fundamentals going into the crisis, the massive relief measures, as well as the pursuit of important legislation, such as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) under the Comprehensive Tax Reform Program (CTRP).
“JCR holds that a downturn will be limited given the country’s strengthened economic base, resilient external position, and the government’s economic stimulus package totaling more than 9 percent of GDP,” JCR said.
“[We] also consider that the fiscal soundness will not be impaired because while the fiscal deficit may widen, the package at this time is justifiable and the government debt will remain comparatively subdued,” it added.
Looking ahead, JCR expects the Philippine economy to bounce back with growth anywhere between 6 and 7 percent in the medium term following an anticipated contraction this year due to the effects of the coronavirus disease.
The debt watcher likewise recognized the stability of the banking sector, noting that the average capital adequacy ratio of banks in the country stands at a comfortable 15 percent.
It also cited the country’s manageable external debt balance which was kept low at 22.2% of GDP as of end-2019 and the robust foreign currency reserves.
“JCR holds that the country will show its high resilience even when global risk-off moves would be triggered again by the second wave of COVID-19 pandemic,” it said.
The credit rating upgrade from JCR bodes well for the Philippine government’s fund-raising activities, which in recent years have included regular issuance of Samurai bonds. The investment guidelines of many Japanese institutional investors allow them to invest if JCR assigns an A- rating or higher.
Improvements in the Philippines’ investment-grade ratings help governments to easily access funding at favorable costs and help boost overall investor perception. The savings generated from cheaper borrowings will allow governments to spend more of their resources for much needed social services, such as health care and education as well as in job-generating infrastructure projects.
The rating upgrade from JCR came following the decision of Fitch to affirm the “BBB” rating it assigns to the Philippines, and the move of S&P Global to affirm the country’s “BBB+”. Both investment-grade ratings have a “stable” outlook.
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