S&P affirms PH credit rating, sees 'strong recovery' in 2021

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Metro Manila (CNN Philippines, May 30) — S&P Global Ratings is maintaining its credit rating for the Philippines despite this year's economic slowdown due to the pandemic, noting that the country shall "achieve a strong recovery" in 2021.

In a statement on Saturday, the international debt watcher said it was affirming its "BBB+" credit for the country, a notch closer to "A" grade level. This rating attests to the stability of the Philippine economy and the capability of the government to settle debts, allowing for cheaper loans abroad, the institution said.

For this year, however, the New York-based credit rating agency expects the Philippine economy to shrink by 0.2 percent, citing local quarantine restrictions in place and demand-and-supply shocks resulting from the COVID-19 pandemic.

This figure is more optimistic than the government's forecast for the current year, which is a 2 to 3.4 percent contraction for the economy.

To aid the government's response to the crisis, three pending measures have recently been approved by a House of Representatives panel. Among these is a ₱1.3-trillion economic stimulus package intended for those affected by the pandemic.

The Duterte administration has also taken on more loans to fund its response to the coronavirus crisis. Just this week, multilateral lenders World Bank and Asian Development bank approved loans of $25 million (equivalent to about ₱25 billion) and $400 million (about ₱20 billion), respectively.

These increased the country' total borrowings from WB to $1.1 billion (around ₱55 billion) and the ADB to $2.1 billion (about ₱106 billion) for the year. Also, the China-led Asian Infrastructure Investment Bank on Friday approved a $750 million (about ₱38 billion) loan.

S&P also sees the Philippine economy expanding by 9 percent next year, supported by a robust growth in investment and exports. But this is assuming that the pandemic is contained within the first six months of 2021, it pointed out.

The debt watcher maintained its stable outlook for the country as well, saying it reflects their "expectation that the Philippines' orthodox policymaking will continue to underpin its credit metrics."

"We may raise the rating over the next two years if the economy recovers much more quickly than expected, and the government makes significant further achievements in its fiscal reform program, such that the net general government indebtedness falls below 30% of GDP," said S&P.

Similar to last year, it said, the government had achieved "partial success" with its tax reform program.

However, S&P noted that the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill, a move aiming to lower corporate income tax rates from 30 percent to 25 percent pushed by the Finance Department, might "entail a net loss of revenue for the government over time" despite possibly supporting the economy in the near term.

The debt watcher also added it may downgrade the Philippines' credit rating if the country's economic downturn will continue longer than expected.