Standard & Poor's upgrades Philippines credit outlook to 'positive'

Metro Manila (CNN Philippines, April 27) – International credit rating agency Standard & Poor's Global Ratings (S&P) upgraded the Philippines' credit outlook to 'positive,' while affirming the country's current credit rating at 'BBB' for long-term and 'A-2' for short-term.

A country's credit rating is its ability to borrow money and repay its debts. A long-term credit rating of 'BBB' puts the Philippines at an adequate investment grade, although adverse economic conditions could weaken the country's ability to meet its financial obligations.

On the other hand, the country's 'A-2' short-term rating means that the Philippines has a satisfactory chance of meeting its short-term financial obligations.

The change of S&P's outlook to 'positive' from 'stable' could mean a future upgrade in the Philippines' credit rating.

"We may raise the ratings if the government's fiscal reform program leads to further achievements over the course of the next 24 months," S&P said. "We may revise the outlook to stable if the reform agenda stalls, if the recalibrated fiscal program leads to higher-than-expected net general government debt levels, or if we deem that policymaking settings have otherwise regressed against our expectations."

The credit rater based its current report on the government's fiscal policies, including the Comprehensive Tax Reform Program (CTRP) which is intended to fund the administration's "Build, Build, Build" program.

READ: Duterte signs tax reform bill, 2018 budget into law

"The Philippines government is enacting increasingly effective fiscal policies, marked by improvements to the quality of expenditures, still-limited fiscal deficits, and low levels of general government indebtedness," S&P said. "At the same time, the economy continues to achieve consistently robust growth."

S&P does not anticipate any significant risks to the country's external economy from the passage of the government's second tax reform program, which seeks to lower corporate income tax rates and update fiscal incentives to investors.

READ: Finance Department submits second tax reform package to Congress

"Other factors that mitigate risks associated with the Philippines' international liabilities include a low reliance on external savings by its bank and corporate sectors, as well as the low and mainly long-term nature of the government's external borrowings," S&P said.

Despite seeing a potential for continued strong economic growth, the current ratings is constrained by the country's low per capita income.

The agency said that the Duterte administration's more aggressive expenditure plans compared to its predecessor could lead to a higher government deficit by 2021 at 2.3 percent, compared to the 0.3 percent average from 2014 to 2017.

"We estimate the deficits will lead to a relatively stable net general government indebtedness position, averaging 27.2% of GDP from 2018-2021," S&P said.

S&P forecast that robust services exports in tourism, health care, maritime, and business process outsourcing, as well as large remittance inflows would cushion the impact of rising capital goods imports as the government continues its aggressive infrastructure spending.

The Philippines could also benefit from participating in free trade agreements, it added.

In 2016, S&P cited President Rodrigo Duterte's aggressive anti-drug campaign as a potential risk to the Philippine's credit rating. The war on drugs was not mentioned in the credit rater's latest report.

READ: S&P affirms PH credit rating but warns of 'uncertainties'