Author Topic: Fitch upgrade PH credit rating to BBB; fiscal policies support strong growth  (Read 552 times)

adroth

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FITCH UPGRADES PH CREDIT RATING TO BBB; FISCAL POLICIES SUPPORT STRONG, SUSTAINED GROWTH

http://www.dbm.gov.ph/index.php/news-update/news-releases/404-fitch-upgrades-ph-credit-rating-to-bbb-fiscal-policies-support-strong-sustained-growth

On the back of sound macroeconomic fundamentals, prudent economic policies, and sustained economic growth, Fitch Ratings has upgraded the Philippines’ long-term credit rating from “BBB-” to “BBB” with a stable outlook last December 11, 2017.

Credit ratings assess the default risk of a prospective debtor, providing guidance to investors, corporations, and governments worldwide. The improved credit rating of the Philippines will therefore enhance the government’s access to financing and potentially present more favorable terms and conditions for future loans.

Among the key ratings drivers cited by Fitch include the Philippine economy’s consistent growth performance evidenced by strong domestic demand and inflows of foreign direct investment, as well as the country’s robust fiscal position.

The ratings agency lauded the fiscal policies of the government that are geared to boost infrastructure spending and liability management. The tax reform initiative, in particular, will generate revenues for the government to finance its expenditure priorities while also supporting the projected decline of the government debt-to-GDP ratio to around 34%, below the “BBB” median of 41% of GDP.

On the monetary front, Fitch also mentioned that it expects inflation to remain within the 2% – 4% target band of the Bangko Sentral ng Pilipinas. The current account deficit is also expected to be manageable, driven by imports of capital goods, and being offset by remittance inflows and business process outsourcing (BPO) receipts. Furthermore, the credit agency said that foreign exchange reserve levels remain to be adequate, covering close to 8 months of current external payments.

“The Duterte Administration welcomes the good news of the credit upgrade by Fitch Ratings Inc.,” said Department of Budget and Management Secretary Benjamin E. Diokno. “The upgrade supports the growing consensus that the Philippines is one of the fastest growing countries not only in the fast-growing Asia Pacific region but also in the entire world,” the Budget chief added.

“As much as we are thankful, we will not rest on our laurels and will continue to persevere for the welfare of our constituents,” he continued. “Ultimately, this credit upgrade is only a means to an end for our overarching objectives – growth with equity evidenced by lower poverty levels, solid job creation, and higher human development.”
« Last Edit: January 13, 2018, 09:03:14 PM by adroth »

adroth

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Philippine Credit Rating

https://www.senate.gov.ph/publications/AG%202012-05%20-%20Credit%20Rating%20Agencies.pdf

Sovereign credit ratings are important for three reasons. First, they are the major determinants of a country’s borrowing costs in the international capital market. Issuers with lower credit ratings pay higher interest rates representing larger risk premiums. Second, they affect private costs as they generally set the ceiling for the ratings
assigned to domestic banks and companies. Lastly, they determine the eligibility of financial instruments for the portfolios of certain low-risk institutional investors.

The Philippines has been tagged as one of the most sophisticated sovereign borrowers in Asia. The Philippines’ credit rating however, remains below investment grade and lags behind its Asian neighbors. The government, hence, needs to double its efforts if it aims to be an investment grade issuer by the end of 2013.

The Credit Rating Agencies

The credit rating agencies’ (CRAs) main task is to analyze and evaluate the creditworthiness of sovereign and corporate issuers and their debt instruments. Moody’s
Investor Services (Moody’s), Standard and Poor’s (S&P), and Fitch Ratings (Fitch) are the three biggest CRAs in the industry. CRAs reduce information asymmetry between
lenders and investors, on one hand and issuers on the other. This is an important factor in achieving market efficiency.

CRAs assess risks based on an analysis of a broad set of economic, social and political factors. Countries with a rating of BBB or above in the case of S&P and Fitch, and Baa
or above in the case of Moody’s, are considered to be investment grade; countries with ratings below that threshold are considered to be speculative grade.

According to a recent study published by the International Monetary Fund (IMF), attaining an investment grade status reduces sovereign financing spreads by 36 percent above and beyond what is implied by macroeconomic fundamentals, suggesting significant tangible benefits of reaching such status. An investment grade status also
prompts inflows from institutional investors, whose covenants prevent them from investing in speculative grade assets, thus resulting in a broader and more diverse investor
base.

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« Last Edit: January 13, 2018, 09:02:54 PM by adroth »