Japan’s R&I upgrades PH credit rating to A- with a stable outlook

A JAPAN-BASED credit rating agency on Wednesday announced an upgrade for the Philippines, citing the country’s fiscal gains and economic growth.

“The Philippine economy has been showing fast growth among the major economies in Southeast Asia,” Rating and Investment Information Inc. (R&I) said in a statement.

“Based on macroeconomic stability and high economic growth path as well as expected continuous improvement in fiscal balance, R&I has upgraded the Foreign Currency Issuer Rating to A-,” it added.

The country’s credit rating was raised from BBB+ with a positive outlook to A- with a stable outlook. Japan Credit Rating Agency Ltd. also scores the Philippines as A- with a stable outlook.

R&I said the Philippines was expected to experience steady growth and rising national income due to factors such as public and private sector investments, industries like business process outsourcing and favorable demographics, among others.

Private consumption, the country’s main economic driver, was said to have remained strong, supported by remittances from overseas Filipinos and better employment conditions.

With inflation also slowing, R&I expects the economy to grow faster than the previous year, owing mainly to recovering external demand.

It noted that the country’s fiscal balance, which worsened during the Covid-19 pandemic, had improved and that the government debt ratio was likely to start declining within a year or two.

Current account deficit and external debt levels were said to be manageable, with limited external concerns, and the banking sector also remains stable.

“Given that the increasing trend of imports such as construction materials backed by infrastructure investments can be seeds for future growth, R&I views that the current account deficit is not necessarily a negative element in the Philippines’ credit assessment,” it said.

“Despite the liabilities in excess of financial assets … the gap between liabilities and assets remains at a low level relative to GDP (gross domestic product),” it added.

The current account deficit is expected to narrow to around 2.0 percent of GDP this year, and the fiscal deficit as a percentage of GDP also seen declining to near the government’s target.

Debt — said to be manageable given affordable terms — is likely to start falling within a year or two from its peak of 60.9 percent of GDP in 2022.

The introduction of public-private partnership-based infrastructure development also signals the government’s aim for private companies to take a larger role and reduce the fiscal burden, R&I said.

With the government actively easing regulations to encourage private investment, R&I said this was a sign of strong progress in strengthening the foundations for medium- to long-term economic growth.