Rating upgrade targeted before ODA dries up
ECONOMIC MANAGERS are counting on a credit rating upgrade in the medium term to offset lost access to low-cost loans as the Philippines moves up the ranks of middle-income nations.
Finance Secretary Carlos G. Dominguez III said in a news conference Friday that the road map to an A-level sovereign credit rating is currently being drafted by an interagency body, consisting of the Department of Finance (DoF), the Bangko Sentral ng Pilipinas (BSP), the Bureau of the Treasury (BTr) and the National Economic and Development Authority (NEDA).
The Philippines is expected to become an upper middle-income country next year, which will limit its access to loans which charge lower-than-market rates.
“We mean to address the need for us to improve our credit rating because we’re going to lose our special interest rates since we will be graduating to upper-middle income status so we have to make sure that the differentials in the interest rates will be lessened by the credit upgrade,” Mr. Dominguez told reporters.
Socioeconomic Planning Secretary Ernesto M. Pernia said the faster approval of infrastructure projects will give the country more time to secure concessional loans before it graduates to upper middle-income status.
“Given that we’re going to be an upper middle-income country next year, we really have to fast-track the approval of the projects, especially in terms of funding so we can avail of concessional rates, I think we have only up to 2022-2023 to do that, so that’s one motivation in terms of rushing, getting more ICC (Investment Coordination Comittee) meetings to get projects going,” Mr. Pernia said.
In the latest NEDA ICC Cabinet Committee meeting Friday, 12 big-ticket projects with a total cost of P626.11 billion were approved.
NEDA Undersecretary Rosemarie G. Edillon said last week that the country is hoping to obtain an A-level credit rating by 2022 with the help of the road map the interagency committee is drafting.
Mr. Dominguez said passing the remaining packages under the tax reform program will help in the credit rating upgrade as it will increase the tax revenue as a percentage of gross domestic product (GDP).
So far, the government has passed Republic Act (RA) No. 10963, which reduced personal income tax rates and increased or added levies on several goods and services; RA 11213; the Tax Amnesty Act of 2019, which granted an estate tax amnesty and an amnesty on delinquent accounts; and RA 11346, which will gradually increase the excise tax rate on tobacco products to P60 per pack by 2023 from P35 currently.
Last week, Congress ratified the tax measure that will raise the excise tax on alcohol products, electronic cigarettes and vapor products, which will go up for President Rodrigo R. Duterte’s signature.
Mr. Dominguez said the government needs to ensure that it maintains a healthy debt burden in relation to its growing economy; hence, the debt ratio to GDP is capped at 42%.
The road map for the credit rating upgrade was first announced in May, days after credit rater S&P Global Ratings raised the country’s long-term sovereign credit rating to “BBB+” from “BBB,” one notch away from an “A”-level rating.
UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said an A-level credit rating promotes a favorable business environment as it allows wider access to financing both for the government and the private sector.
“An A-credit rating for the country would be the first ever of its kind. The country’s bonds would be more attractive in international markets, allowing government to access more financing for economic development. This rating upgrade would also allow the country’s top firms get more access to financing, giving them opportunities to expand business. A higher credit rating almost always means positive for any firm or sovereign country,” Mr. Asuncion said in a phone message Sunday. — Beatrice M. Laforga