PH bags rating upgrade from S&P

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Metro Manila (CNN Philippines, April 30) — S&P Global Ratings has upgraded the Philippines' credit rating by one notch, noting that the tax reform program has proven to be a "partial success."

In a statement, the global debt watcher said that the Philippines has been raised to the "BBB+" level from "BBB" previously, or three notches above junk status.

This upgrade vouches for the stability of the Philippine economy and the government's capacity to pay its debts, making it cheaper for the country to borrow from abroad.

"We raised the rating to reflect the Philippines' strong economic growth trajectory, which we expect to continue to drive constructive development outcomes and underpin broader credit metrics over the medium term," S&P said. "The rating is also supported by solid government fiscal accounts, low public indebtedness, and the economy's sound external settings."

The credit rater said the country is enjoying "above-average economic growth, a healthy external position, and sustainable public finances."

Last year, S&P signalled a possible rating upgrade when it changed its outlook on the Philippines to "positive." This came amid improved fiscal policies just months into the implementation of the Tax Reform for Acceleration and Inclusion law.

S&P said the first package of the government's tax reform program helped ensure sustainable finances, while also supporting the "Build, Build, Build" infrastructure program.

The Philippines has logged above-six percent annual economic expansion in recent years, although the 6.2% pace in 2018 stood at a three-year low. The country is touted as among the fastest-growing in Asia.

The credit rater said it expects a recovery in economic performance over the coming years, as 2018's growth slide was pulled by surging inflation.

S&P gave a stable outlook for the credit rating, but noted that it may issue another upgrade in the next two years should the government make "significant further achievements" towards fiscal reform, or if local institutions vastly improve.

However, the debt watcher said it may downgrade the Philippines if it incurs a higher-than-expected debt burden or if growth significantly slows.

S&P also flagged delays in approving the ₱3.757-trillion national budget for 2019, saying that this will likely slow down state spending and could be credit negative if repeated.

For now, the outlook is bright.

"Strong economic growth should continue over the forecast period as long as investment is maintained," S&P added, noting that strong household and corporate incomes, worker remittances, and a healthy financial system will prop up the economy.

S&P pointed out the need to plug infrastructure gaps and for greater political stability and regulatory reforms to preserve the growth momentum.

S&P expects the Philippine economy to grow by 6.3 percent this year, 6.5 percent in 2020, 6.6 percent in 2021, and to 6.7 percent by 2022.