A JAPAN-BASED debt watcher has affirmed its credit rating for the Philippines, with the view that “aggressive” infrastructure spending plans under the Duterte administration will ensure solid growth over the medium term.

Rating and Investment (R&I) Information, Inc. kept its “BBB” rating with a “stable” outlook for the Philippines, vouching for the country’s ability to pay its debts.

A growing stream of investments — largely driven by the “Build, Build, Build” program of the Duterte administration that will see some P8.44 trillion spent on public infrastructure until 2022 — will help sustain rapid overall economic expansion, adding to buoyant household spending that has been a staple growth driver.

“The Philippines’ economy is expected to post solid growth, driven by aggressive infrastructure investment under the Rodrigo Duterte administration. Anticipated widening of the fiscal deficit and another current account deficit will unlikely be a major disturbing factor,” R&I said in a statement on Monday.

“The Duterte administration has the strongest enthusiasm for larger infrastructure investment among recent administrations and is working to improve efficiency in spending.”

The latest rating action keeps the Philippines one notch above minimum investment grade, matching those given by the three biggest international rating agencies.

Last week, Fitch Ratings upgraded the Philippines’ long-term issuer rating to “BBB” amid optimism that the tax reform program and public spending plans will keep the economy growing at above six percent annually.

R&I said a wider fiscal deficit at three percent of gross domestic product (GDP) will not cause a “significant” deterioration” in the country’s debt burden and overall fiscal discipline, as there remains much room to accommodate even bigger spending.

President Rodrigo R. Duterte yesterday signed the first package of the Tax Reform for Acceleration and Inclusion, which will reduce personal income tax rates but will also raise fresh revenues via higher levies on fuel, cars, sugar-sweetened drinks, coal, cigarettes, investment products, and cosmetic procedures, to name a few.

The additional revenue streams are seen to support the P8.44-trillion infrastructure spending plan laid out until 2022, which involves the construction of 75 flagship projects designed to improve logistics and the ease of doing business here.

Robust foreign direct investments and rosy economic prospects also allay funding concerns, R&I said, and the current account deficit expected this year merely reflects increased imports rather than collapsing fiscal health for the Philippines.

“[I]t is essential to sustain the momentum of investment from inside and outside the country by improving the business environment through continued reforms,” the debt watcher added.

At the same time, R&I noted that tax reform as well as a recovery in global oil prices could push inflation upward, leaving more work for the Bangko Sentral ng Pilipinas to keep overall price increases under control amid the upbeat growth momentum.

Philippine GDP expanded by 6.7% in 2017’s first three quarters, well within the government’s 6.5-7.5% growth goal for the entire year. This has been accompanied by inflation that averaged 3.2% from January to November, settling comfortably within the central bank’s 2-4% target range.

R&I also dismissed fears over political risks, saying that initial tensions between the Philippines and the United States — especially after Mr. Duterte declared his “separation” from the United States in a speech to businessmen in Beijing in October last year — have dissipated, as the President has shifted to a “more realistic and pragmatic stance” since then.

“R&I believes that the risk of diplomatic relations dampening the economy has diminished after being elevated following his inauguration,” the credit rater said, citing currently warm ties between US President Donald J. Trump and Mr. Duterte. — Melissa Luz T. Lopez

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