Philippines’ credit ranking raised by Moody’s

On the 29th of October, Moody’s Investor Service informed that it had upgraded the credit ranking of the Republic of the Philippines, which is now closer to investment grade status.

The upgrade

The Republic of the Philippines’ credit rating has been upgraded to the highest level by Moody’s Investor Service since 2004. The Philippines is just one step away from investment grade status. According to a statement released by Moody’s Investor Service, Philippines’ foreign and local currency long-term bond ratings were raised to the Ba1 level from the Ba2 level. Currently the Southeast Asian country has the same rating as Turkey and Hungary. In addition, the ratings outlook is stable.

Moody’s Investor Service highlighted that the improved economic and fiscal performance of the Republic of the Philippines was one of main reasons of the upgrade. Undoubtedly, low inflation, growing foreign exchange reserves, growth prospects as well as stable financial system of the Philippines were among key factors of the credit ranking upgrade. The Philippines’ credit ranking upgrade had been long awaited by analysts as well as market players. Therefore the muted price action was not a surprise.

Fitch Ratings and Standard & Poor’s had upgraded their ratings earlier. Thus the Philippines’ government welcomed the Moody Investor Service’s lift. Currently the country is looking forward to an investment-grade rating as it would not only cut borrowing costs for the country but also attract more investment funds as well.  Cesar Purisima, Secretary of the Philippine Department of Finance, believes that the upgrade of the credit ranking of the Republic of the Philippines is a proof that economic fundamentals were improved by the government. The investment grade is expected to be achieved soon due to the government’s policies aimed at achieving macroeconomic stability and investment growth as well.

According to Jeffrey Ng, an analyst with Standard Chartered Bank, the investment-grade rating is within reach of the government if the Philippines implements other essential fiscal reforms. He stated: “We have been calling for investment grade around 2014. The country’s strengths are in its economic fundamentals and stable political environment; the government is still working on investment and fiscal consolidation.”

Dreaming about investment

Data showed that Gross Domestic Product of the Republic of the Philippines grew approximately 5.9 percent in the second quarter compared to a growth of 6.3 percent in the first quarter, which was the biggest jump in the region of Southeast Asia.

Recent moves of the government of the Republic of the Philippines indicate that the country is seeking investors. To make the country even more investor-friendly the government decided to sign a peace agreement with the largest Muslim rebel group, the Moro Islamic Liberation Front, in the month of October. Also Moody’s Investor Service appreciated the peace treaty, stating that it would have a positive impact on both investment and economic growths in Mindanao, the resource-rich conflict zone.

Certainly, the upgrade in Philippines’ credit rating seems to be an appreciation of the administration of President Benigno Aquino as he has been focusing on the elimination of corruption and cuts in the budget deficit as well. The government hopes that due to the recent upgrade in the country’s credit ranking the Philippines will see more investments as investors usually regard upgrades as an indicator of economic prospects in general.

Jay Raol

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