Posted at 03/27/2013 2:44 PM | Updated as of 03/27/2013 9:30 PM
MANILA (2ND UPDATE) -- The Philippines got its first long-coveted investment-grade rating on Wednesday, as Fitch Ratings gave the country a 'BBB-' with a stable outlook.
An investment grade status opens up the country to more investments that can lead to additional jobs and funds for infrastructure, and help create sustainable economic growth.
"The Philippine economy has been resilient, expanding 6.6% in 2012 amid a weak global economic backdrop. Strong domestic demand drove this outturn," Fitch said in a statement. (For the full statement, click here.)
But the credit rater expects the economy to slow down to 5.5% this year, lower than government estimates of a 6-7% growth.
Fitch lauded the improvements in Philippines' fiscal management that began under former President Gloria Macapagal-Arroyo that made "general government debt dynamics more resilient to shocks."
These improvements, the debt watcher said, made the country's strong economic and moderate budget deficits in line with investment-grade status.
Efforts of the Bangko Sentral ng Pilipinas, meanwhile, were also not in vain as Fitch stressed the inflation management mechanism and policy-making framework of the central bank gave way to the country's current favorable macroeconomic conditions.
However, Fitch pointed out more governance reforms should be put in place as the Philippines lag behind other BBB countries in this aspect.
"Governance reform has been a centerpiece of the Aquino administration's policy efforts. Entrenching these reforms by 2016 is a policy priority of the government," Fitch noted.
The credit rater also recounted the low fiscal revenue of the Philippines maybe below investment-grade standard, but the recent sin tax law should allow the government to rake in more tax revenues.
A further positive rating action on the Philippines is possible if the country can sustain its economic growth or broaden its fiscal revenue, Fitch said. But a downgrade is also possible if the country sees a reversal of the reforms in place, a higher fiscal debt, an unstable banking sector, or a deterioration in monetary policy management.
Reactions
The Philippine Stock Exchange index (PSEi) soared to a new high on Wednesday, lifted by the news of the Philippines' investment grade rating.
BSP Governor Amando M. Tetangco, Jr., in a statement on Wednesday said "The investment grade upgrade should inspire the entire government bureaucracy and the Filipino people to capitalize on the opportunities that will arise from the rating upgrade."
"From our end at the BSP, we will remain committed to our mandate of maintaining a stable inflation environment supportive of economic growth, and on enhancing governance standards of financial institutions in line with the national priority of good governance," he continued.
Finance Secretary Cesar V. Purisima also welcomed the rating upgrade, saying this "opens up more sources of financing for our businesses, lowers the cost of borrowing, and encourages more investments, which in turn will lead to more jobs and greater incomes for our people."
"The Aquino administration remains committed to eliminating corruption, investing in our people, and enhancing our infrastructure and overall business climate. We have already done so much in the past 3 years, with greater cooperation from our people, we can do so much more," Purisima added.
Two other credit raters, Standard & Poor's and Moody's
Investors Service, rate the country a notch below investment grade.
S&P awarded the Philippines a BB+ with a positive outlook, while
Moody's gave it Ba1 with a stable outlook.
Economists noted there are still a lot to be done following the rating upgrade to sustain and boost economic growth."Fitch's rating upgrade of Philippines to investment status will certainly boost investment confidence in the country, which is seeing strong growth momentum and improved public finances," Bernard Aw, economist at Forecast PTE in Singapore, said.
"However more work needs still need to be done, particularly in terms of pushing through reforms to increase investments as well as government revenue," he added.
Jose Vistan, research head at AB Capital Securities in Manila, said for his part: "It's something that was already expected by the stock market but I think investors will welcome it and that will push the main index to 7,000 possibly next week. We're just 200 points away from that level."
"The question now is what's next after the ratings upgrade. There's a lot of concern about valuations," he pointed out.
Norio Usui, country economist at the Asian Development Bank, said the rating is "unprecedented in the Philippines and can trigger the kind of investment that will help carry the country into its next phase of development."
"Prudent measures to attract investment, improve the business climate and diversify the economy have paved the way for growth. Now it's up to the authorities to make that growth more inclusive by creating more and better jobs," Usui added.-- with Reuters
*Are you gonna be a part of this great economic bustle or just stay at the sidelines and watch?
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