Category : Press Release
Date : July 21, 2018
Agency : Investor Relations Office
Title : Moody’s affirms PH’s ‘Baa2’ rating with stable outlook
Article : Moody’s Investors Service has kept the Philippines’ “Baa2” rating and maintained the outlook at stable, citing “very positive credit features” owing to the economy’s strong growth momentum, ability to weather external headwinds, and improved fiscal strength.


The Baa2 rating is a step above minimum investment grade. The “stable” outlook indicates absence of material factors that can cause the rating to change, at least within the short term.


In its latest report on the Philippines released last Friday, Moody’s said, “The credit strengths [of the Philippines] include a relatively large economy and high growth potential that support the economy’s capacity to absorb shocks.” It added that, “large foreign exchange reserves and low economy-wide external debt contribute to macroeconomic stability.” Moody’s also favorably cited the government’s tax reform, which is raising the government’s revenues and which provides support to its bold infrastructure development agenda.


Moody’s recognized that the Philippines’ credit profile, supported in part by a manageable debt level, “has a number of features which compare well” with those of economies assigned higher credit ratings.


Balancing its report, the debt watcher also took note of current challenges such as the uptick in inflation; the potential fiscal impact of a shift to federal system of government; some political concerns and possible implications of a reported Supreme Court ruling augmenting the share of local government units to national government revenues.


Responding to the latest rating report from Moody’s, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. underscored the BSP’s commitment to price stability.


Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. said: “The BSP continues to maintain a close watch on domestic and external factors affecting prices. Elevated inflation this year is mainly due to supply-side pressures. However, inflation is expected to return to the target range of 2.0 to 4.0 percent by 2019. The BSP is ready to take follow-through actions to the policy rate hikes done in May and June 2018 to further anchor inflation expectations and address any brewing demand-side pressures.”


The BSP Governor noted Moody's affirmation of the 'Baa2' rating as a recognition in part of “years of sound monetary policy and effective banking supervision that have helped anchor the Philippine economy, even in times of global economic distress.”


Finance Secretary Carlos Dominguez III said: "Moody's positive assessment is yet another recognition of the Duterte administration's commitment to structural reforms in the economy that would lead to robust and inclusive growth into the medium term.”


As for Moody’s concern over the government’s revenue-raising capacity, Dominguez said the debt watcher itself has pointed out in its latest report that the first package of the Comprehensive Tax Reform Program (CTRP)—the Tax Reform for Acceleration and Inclusion Act (TRAIN)—has already had a “pronounced impact on the government’s revenue performance” and “complemented faster implementation of infrastructure development.” Hence, he said, “Moody’s itself has virtually recognized that with President Duterte’s enactment of the TRAIN Law, the government has managed to put in place a steady revenue source for its ‘Build, Build, Build’ initiative, which will sustain the growth momentum and create a lot more jobs for Filipinos.”


With regards to Moody’s political concerns, Dominguez pointed out that the continued strong investor confidence in the domestic economy—as illustrated by the surge in foreign direct investments (FDIs) to a record $10 billion in 2017—proves that the political chatter emanating from certain quarters has failed to dampen the interest of the international business community in the Philippines’ exciting growth narrative.


Within two years in office, the Duterte administration has significantly boosted the government’s revenue take through decisive tax reform and enhanced administrative efforts. The TRAIN – revenues from which help fund more big-ticket infrastructure and higher investments in human capital development – is proof of the political will and commitment to bring about a higher quality of life for Filipinos without compromising the government’s fiscal health.


“We duly recognize the benefits of maintaining a sound fiscal position as well as the adverse consequences of doing otherwise. Pursuing accelerated poverty reduction, widening of the middle class – while keeping the government’s finances healthy – is a strict policy of this administration,” Dominguez said.