S&P upgrades PH outlook to ‘positive’

S&P Global Ratings on Tuesday upgraded its outlook on the Philippines to positive from stable, as it cited what it described as “effective policymaking,” as it said it may raise the sovereign credit rating if the current account deficit is tapered moving forward.

According to S&P, policymaking in the country has delivered “structural improvements” to the country’s credit metrics, and that the share of revenues to the gross domestic product (GDP) have been raised by fiscal reforms.

“The positive outlook reflects our improved assessment of institutional and policy settings in the Philippines,” it said in a dispatch released Tuesday.

“This improvement could lead to stronger sovereign support over the next 12-24 months if the Philippines’ economy maintains its external strength, health growth rates, and that fiscal performance will strengthen,” it added.

The Bangko Sentral ng Pilipinas (BSP) has so far cut policy rates by 50 basis points this year — 25 basis points in August, and another 25 basis points in October. Such adjustments brought the target reverse repurchase rate (RRP) to 6.0%, the overnight deposit rate to 5.5%, and the overnight lending facility rate to 6.5%.

Just last week BSP governor Eli Remolona Jr. said the central bank is still on its easing cycle, hinting at another rate cut during the next policy meeting of the Monetary Board scheduled on December 16, 2024, or the next one which will be in 2025.

S&P on Tuesday also affirmed its “BBB+” and “A-2” sovereign credit ratings. A higher credit rating is generally seen more favorably, as this would entail lower borrowing costs for the country.

“We may raise the ratings if our expectations of current account deficits tapering over the forecast period are realized such that buffers in the Philippines’ narrow net external asset position are maintained and if the government achieves more rapid fiscal consolidation,” S&P said.

The central bank expects the current account deficit to hit $6.8 billion this year, equivalent to 1.5% of the gross domestic product (GDP) before falling to $5.5 billion or 1.1% of the GDP in 2025.

“We could revise the outlook to stable if the economic recovery falters, leading to a significant erosion of the country’s long-term trend growth or an associated deterioration of the government’s fiscal and debt positions. This compares with a gradual improvement that we currently project,” S&P said.

The latest adjustment was welcomed by BSP’s Remolona, who said the improved outlook helps the government borrow at lower interest rates and allow it to fund more services and infrastructure.

“The BSP welcomes S&P’s decision. This reflects the work the government has done to improve the economic, fiscal, and monetary environment, enabling strong growth to continue,” he said in a separate statement.
 
“The BSP remains committed to promoting price stability, financial stability, and an efficient payment system to support sustainable economic growth,” he added.

Remolona’s remarks were echoed by Finance Secretary Ralph Recto, who noted that the country continues to embark on its “Road to A” initiative that seeks to have the Philippines with an “A” credit rating from major global credit watchers.

“It reaffirms our stable economic and political environment and that we are on track to achieve a growth-enhancing fiscal consolidation. We have a comprehensive Road to A initiative to ensure that we secure more upgrades soon,” he said separately. —RF, GMA Integrated News