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Japan credit rater maintains Philippines’ investment grade

Posted on July 07, 2017

A JAPAN-BASED DEBT WATCHER affirmed its credit rating for the Philippines on the back of the country’s sustained growth momentum and sound fundamentals despite infrastructure deficiencies and terror threats that cloud investor sentiment.

A construction worker is seen on scaffolding on a government elevated highway project in Manila in this photo taken on January 28, 2016. -- AFP PHOTO / JAY DIRECTO
In a statement, the Japan Credit Rating Agency, Ltd. kept its “BBB+” rating -- two notches above minimum investment grade -- with a “stable” outlook for the Philippines’ foreign currency and local currency long-term issuer ratings. The outlook signals that the rating will likely be maintained in the next 12-18 months.

“The ratings mainly reflect the country’s high level of economic growth underpinned by expanding domestic demand, resilience to external shocks supported by declining external debt and accumulation of foreign exchange reserves, and continued reduction of government debt burden,” JCR’s statement read.

“On the other hand, the ratings are constrained by the country’s challenging investment environment, in particular its inadequate infrastructure albeit some improvement in recent years,” it added.

“The country is now going through a process of reconciling expansion of infrastructure spending with fiscal consolidation through tax reforms. Taking these into consideration, JCR has affirmed its ratings with a stable outlook.”

JCR was referring to the Duterte administration’s “Build, Build, Build” initiative that will involve some P8.44 trillion in public spending on infrastructure projects over the next six years in order to improve ease of doing business, thereby spurring economic growth.

The Philippine economy expanded by 6.4% in the first quarter, below the state’s official 6.5-7.5% target band for 2017 but still faster than most major Asian economies with the exception of China.

JCR said the momentum will likely be sustained by upbeat consumer spending and capital formation, especially as the government ramps up infrastructure disbursements.

The debt watcher likewise acknowledged the Philippines’ hefty gross international reserves -- reaching $82.066 billion as of May -- as well as the declining share of debt relative to gross domestic product, which bolsters the the country’s resilience to potential external shocks.

However, the credit rater flagged “sociopolitical” concerns, particularly the raging battle for Marawi City and the declaration of martial rule over the entire Mindanao, that could hit investor sentiment.

“Increasing both the inflow and stock of inward FDI (foreign direct investments) is the country’s long-term challenge. JCR holds that the government needs to accelerate its efforts to improve the investment climate in order to attract such long-term, non-debt-creating capital inflows,” added credit analysts Yoshihiko Tamura and Shinichi Endo.

Other major debt watchers -- S&P Global Ratings, Fitch Ratings and Moody’s Investors Service -- have affirmed their respective investment-grade credit ratings for the Philippines in recent months, citing the country’s sustained growth momentum even as they too have lately cited increasing political risks under the current administration. -- Melissa Luz T. Lopez