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MANILA – The Philippines can expect an increase in its credit rating to investment grade in the next one to two years, DBS said on Friday.
“An investment grade rating within the next 1-2 years is a definite possibility if the reform pace is maintained,” DBS said. Investment-grade status would merit lower borrowing costs for the Philippines whenever it taps the overseas capital markets, and would open the floodgates to more foreign investments.
Standard & Poor’s Ratings Services on Wednesday raised its credit rating on the Philippines to ‘BB+’, which is a notch below investment-grade. S&P said the upgrade stemmed from an improvement in the government’s finances.
Government revenues have been increasing by double-digits from a year ago, even as the Bureaus of Internal Revenue and of Customs miss their monthly targets.
The Philippines’ budget deficit settled at P22.786 billion at end-May, a fifth of the P109.341 billion ceiling for the first six months of the year. The government set a P279 billion cap on for the whole of 2012.
The country’s key debt ratios have been on a downtrend, hitting decade lows in 2011. In the first quarter of this year, the Philippines’ external debt ratio - foreign debt as a percentage of the country's gross domestic product - eased to 27.4 percent from the previous year’s 29.5 percent. This ratio is a measure of solvency, and so indicates the country’s capacity to pay down debt in the long run.
Manila’s external debt service ratio likewise fell to eight percent this year from 8.2 percent in 2011, and was way below the 20 to 25 percent international benchmark. This ratio measures the sufficiency of foreign exchange to meet maturing debt.
The Bangko Sentral ng Pilipinas on Friday reported that the country’s gross international reserves climbed to $76.283 billion at end-June on the back of an increase in the value of the central bank’s gold holdings. It has kept its forecast for a surplus in the balance of payments, albeit lower than the previous estimate.
“On the external front, we still expect a current account surplus amounting to $6.2 billion (albeit narrower compared to 2011) for the year,” DBS said, adding that remittances – an important source of foreign reserves – would stay resilient.
Also seen to boost government finances is a strong economy, DBS said, citing the faster-than-expected 6.4 percent expansion in the first quarter of this year. “Even after accounting for a slowdown in 2H, the government’s growth target of 5-6% appears to be realistic,” said the Singaporean bank, which forecast 5.3 percent growth for the Philippines’ gross domestic product.
DBS said S&P’s upgrade “puts the Philippines in the same rating as Indonesia,” adding that the increase “does not come as a surprise” given Manila’s “stronger fiscal and debt profile compared to just a few years ago.”
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