Philippines eyes ‘A’ credit rating before end of Marcos’s term

The Philippine government is eyeing to upgrade the country’s sovereign credit rating to “A,” meaning the risk of default is low and the repayment capacity is strong, by 2028, the last year of President Ferdinand "Bongbong" Marcos Jr.'s term.

“Our goal is still to get an ‘A’ rating before the end of the president's term,” Finance Secretary Benjamin Diokno told reporters in his weekly press chat.

In particular, the Finance chief said the government is targeting to secure an A-level credit rating from at least one of the three major debt watchdogs: Fitch Ratings, Standard & Poor’s, and Moody’s.

“We already have an ‘A’ rating, but from a Japanese agency. We even have a triple ‘A’ from China. But what matters is the three biggest agencies… That has always been our goal… even just one of the three,” Diokno said.

Currently, the Philippines has been assigned a rating of “BBB” or good credit quality by Fitch, a notch away from the ‘A,’ or high credit quality.

By S&P, the country has been given “BBB+” an investment grade rating which means it has adequate capacity to settle financial obligations.

On the other hand, Moody’s assigned a “Baa2” rating for the Philippines, indicating moderate credit risk.

For her part, National Treasurer Rosalia de Leon said credit rating agencies are not concerned with the level of the country’s total outstanding debt, but rather look at the debt profile.

As of end-May 2023, the Philippines’ outstanding sovereign debt hit P14.10 trillion amid ramped-up borrowing to support budgetary requirements and the weakening of the peso. 

De Leon, however, said that looking at the country’s debt profile will indicate that foreign currency exchange fluctuations exposure is only about 32% as majority or 68% of the debt is in local currency.

Likewise, she said the average maturity of the Philippines’ debt portfolio is about 7.6 years, “so it's very manageable in terms of our repayment capacity.”

“Even in terms of interest rates, only about 88% is fixed, so there’s no repricing, so even if interest rates are rising. It’s fixed,” she added.

Diokno said that “it’s not bad to borrow money.”

“We are using the money for infrastructure, we are expanding the capacity of the economy. And also, productivity enhancing measures, like improvement of teacher education. That’s important,” he said.

For this year, the government is expecting that outstanding debt will hit P14.63 trillion.

De Leon said the level could be surpassed, but, nevertheless, the debt-to-gross domestic product (GDP) ratio target of about 61% for 2023 can still be achieved.

“Remember last year, our target was 62%, we hit 60.9%,” the Treasurer said.

Diokno said that come 2028 the debt-to-GDP ratio will be reduced to 51.2%.

For the January to March 2023 period, the Philippines' debt-to-GDP ratio stood at 61%, down from 63.5% in the first quarter of 2022.

The debt-to-GDP ratio represents the amount of the government's debt stock relative to the size of the economy.

“The best way to reduce that ratio is to increase the denominator mo… that’s nominal GDP,“ Diokno said.

Under the government’s Medium-Term Fiscal Framework (MTFF), the debt-to-GDP ratio is eyed to be slashed to less than 60% by 2025 then further down to 51.1 percent in 2028, and reduce the budget deficit to 3.0% of GDP by 2028. — BM, GMA Integrated News