S&P upgrades PHL credit rating to ‘BBB+’

S&P Global Ratings on Tuesday raised its sovereign long-term credit rating for the Philippines given the country's "above-average" economic growth, but flagged that rationalizing incentives could have a downside risk for foreign investments.

In a statement, the global credit watcher raised the long-term sovereign credit rating on the Philippines to "BBB+", two notches above the minimum investment grade.

Prior to this, the Philippines was rated "BBB" or a notch above the minimum investment grade, since April 2018.

Under the S&P ratings scale, an obligor rated "BBB" has "adequate capacity to meet its financial commitments," but adverse economic conditions or changing circumstances are more likely to weaken its capacity to meet its financial commitments.

"We raised the rating to reflect the Philippines' strong economic growth trajectory, which we expect to continue to drive constructive development outcomes and underpin broader credit metrics over the medium term," said S&P.

"The rating is also supported by solid government fiscal accounts, low public indebtedness, and the economy's sound external settings," it added.

S&P flagged, however, the proposed Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill.

The bill, which seeks to lower corporate income taxes and rationalize fiscal incentives, is pending before Congress.

The outsourcing industry earlier said the planned rationalization of tax incentives could be detrimental to the sector.

"[T]he proposed rationalization of tax incentives under the Trabaho bill could affect foreign investor sentiment, depending on the final stipulations of the bill and the timing of its implementation," said S&P.

"We believe this poses some downside risk to the outlook on foreign direct investment (FDI) in the Philippines," it elaborated.

In the same statement, S&P affirmed its "stable" outlook on the Philippines, as it expects the local economy to maintain its "strong" momentum over the medium term.

The Philippine economy grew by 6.2 percent in 2018, missing the government target range of 6.5 percent to 6.9 percent. 

For this year, the inter-agency Development Budget Coordination Committee (DBCC) said it projects economic growth at 6.0 percent to 7.0 percent. — BM, GMA News