S&P affirms PH 'BBB+' rating, stable outlook

June 02, 2020

S&P Global Ratings has affirmed its ‘BBB+’ investment rating with a stable outlook on the Philippines as it forecasts a strong bounce back with a growth of nine percent for the domestic economy in 2021 from a projected 0.2-percent contraction this year.

“Although the economic slowdown will weigh heavily on fiscal and debt metrics over the near term, we expect a meaningful stabilization over the next three to four years owing to strong economic fundamentals and generally orthodox policymaking,” the debt rater said in a statement.

With the affirmation of the country’s credit rating and its outlook, Finance Sec. Carlos Dominguez III said this shows the credit rater’s “unequivocal recognition” of the economy’s resilience.

“We are confident that our government’s four-pillar strategy to deal with the pandemic will see us through this global health emergency as we remain focused on saving lives and protecting communities while gradually lifting mobility restrictions to restart the economy and get people back to work,” Dominguez said in a statement.   

Acting Socioeconomic Planning Sec.  and National Economic and Development Authority Director General Karl Kendrick Chua said the government’s ample buffers and fiscal space serve as a springboard for the government to finance needed programs on “healthcare, infrastructure, and the entire food value chain”.

“No country has been spared from the economic effects of this global pandemic, but our strong economic fundamentals and inclusive recovery measures will power our return to growth,” Chua said.

Bangko Sentral Gov. Benjamin Diokno said the central bank continues to enjoy monetary policy space because of years of instituting reforms and sound policy management.

“While being mindful of our price and financial stability mandates, we are thinking outside the box to enact policies that ultimately help safeguard the lives and livelihoods of our people. Such is our solemn responsibility in this once-in-a-lifetime crisis, and I am confident that our approach will demonstrate the resilience of our country," Diokno  added.

S&P GlobL Ratings said this growth outlook assumed that the coronavirus disease 2019 would be “generally contained” globally in the first half of next year.

It  added the rating’s outlook “reflects our expectations that the economy will continue to achieve above-average growth over the medium term, which will drive constructive development outcomes and underpin broader credit metrics”.

“Although the country's fiscal and debt settings will deteriorate due to the Covid-19 stimulus measures, the government's long track record of fiscal prudence provides some buffer, assuming a meaningful stabilization begins in 2021. The ratings are also supported by the economy's sound external settings,” it said.

Reforms in the past years benefit the domestic economy, it said, adding these reforms enable the Philippines to become one of the fast-growing economies in the world due mainly to supportive policy dynamics and improving investment climate.

“The economy's constructive trajectory is underpinned by strong household and company balance sheets, sizable inward remittance flows, and an adequately performing financial system. Prior to the outbreak of Covid-19, the country's unemployment rate had been declining for a few years, signaling the economy's strengthening labor market even as the working-age population continued to grow,” it added.

With the need to ensure that the economy recovers fast from the pandemic, the government has formulated a P1.7 trillion worth four-pillar program and S&P forecasts this to widen the government’s budget gap to 7.3 percent of domestic output this year.

This budget deficit level vis-à-vis the gross domestic product is seen to increase the net general government debt stock to about a decade high of 35 percent of GDP, but S&P said this level is lower compared to similarly-rated economies.