Category : Press Release
Date : May 08, 2019
Agency : Investor Relations Office
Title : Opening Statement of BSP Deputy Governor Diwa Guinigundo during the Press Conference on the S&P upgrade in Malacañang (8 May 2019)
Article : Let me pick up from Secretary Dominguez’ important point that we did not pursue critical policy and structural reforms to improve our credit ratings. Rather, this latest upgrade to triple B + is an outcome of pursuing what he called game-changing reforms with the biggest multiplier effects on economic growth, employment and poverty alleviation.

So what do we do with this credit upgrade which is just one notch away from A- ?

I recall in 2010 that despite the increasing number of policy and structural reforms, the credit rating agencies chose to ignore them and using basically the same old metrics and methodologies, kept us in the Double B category with some stable outlook for many years. What was starkly missed out that by 2010, we had been growing positively since the first quarter of 1999.

So the Philippine Government and the Bangko Sentral ng Pilipinas began a difficult journey of one, replicating the three methodologies used by the major credit rating agencies; two, engaged them and showed to them the results of their own methodologies; and three, sustained the long and increasing list of policy and structural reforms that reached a watershed under this Administration.

What was the major result if one were to use the old methodologies and metrics of the credit rating agencies?

Using their own methodologies, the Philippines was underrated by about two notches. That means at that time, we should have been rated Triple B- rather than Double B. When we compiled the list of legislative achievements and those still in the pipeline of both the executive and the legislative branches of Government, the credit rating agencies began to notice our own little jurisdiction where indeed game-changing reforms and macroeconomic achievements were being made.
Let me share another observation. The Global Financial Crisis of 2008-2009 broke many long traditions and orthodoxies of the credit rating agencies. The US, long a Triple A jurisdiction was downgraded by S and P. Greece and Cyprus, Spain and Portugal—all members of the European Union which were investment grades ostensibly because of their membership in the developed economies’ economic union were also downgraded. Many myths and legends were unmasked—including the reality that the growth prospects of many developed economies were rather soft and that financial institutions were not appropriately supervised in a consolidated way—and fortunately, the credit rating agencies began a shift in their credit rating methodologies that resulted in the upgrades of many resilient and robust emerging markets including the Philippines.

There are two keys therefore to an upgrade.

One non-negotiable key is the sustained, focused and persevering pursuit of policy and structural reforms. We reap what we sow. If we pursued policies that would further strengthen and increase our potential output including infrastructure and medical health and education, as this Government is doing, we shall see economic growth surging with employment opportunities and poverty alleviation. Per capita income will increase, price movements will be more modest, our external payments position will be less vulnerable to external shocks, the peso will be less volatile, investment will grow. And we shall see a virtuous cycle that would emerge in favor of our economy and people.

Then the credit rating agencies will have no choice but to notice these achievements, give credit to these efforts and further elevate our credit ratings.

Two, which is a very important key as well, is to remain engaged with the credit rating agencies, actual and potential investors, market players and international financial institutions. Credit rating agencies are doing their job with respect to hundreds of other jurisdictions vying for the same upgrade. Engaging with them at every opportunity—the ADB meetings, IMF spring and fall meetings, ASEAN meetings, BIS meetings, business meetings in Hongkong, Singapore, New York, London, Frankfurt, Zurich—we should grab every opportunity to explain to them what is happening on the ground. Let us update them of the latest economic and financial indicators, results of our own stress testing exercises. In short, as in a Ms Universe contest, we must do a Catriona swirl to be noticed, to be set apart from the rest because indeed, like Catriona, we have something beautiful to show them. We have a beautiful narrative of how a sub-investment jurisdiction like the Philippines was able to leap frog to an investment grade that is now just one notch away from the A category.

Then the credit rating agencies like the judges in a beauty contest will be able to sustain their glance and give us a gaze instead.

So moving forward, our goal is to sustain our policy and structural reforms because the long agenda for our people is far from complete. We have a long way to go, many more miles to travel. We don’t need a crisis or an international financial institution to tell us what to do. We shall be doing things for the sake of our people. If these efforts start bearing fruits that are good to eat, then the upgrade will just logically be a consequence.

But we also need to tell such a beautiful narrative to the credit rating agencies and investors alike. We are therefore embarking on an agenda called “The Road to A.”

The idea is for the Department of Finance and the Bangko Sentral ng Pilipinas to organize an inter-agency committee that would formalize a roadmap to articulate and systematize the Philippines’ active pursuit of an A level rating. Such a roadmap will evidence the buy-in and commitment of key economic and infrastructure officials to get our efforts properly credited to A before 2022 to help further bring about more benefits to the economy and to our people.

We shall direct our efforts in addressing the issue of further increasing our per capita income, enhancing our potential output, strengthening our external payments buffers, keeping prices stable, fortifying public finance and elevating governance standards. These are the plots to our interesting story.

We shall then convey the story to our global audience with the assistance of the Investor Relations Office of the BSP. This Office was established in 2001 precisely to raise the Philippines’ credit profile through collaborative, coordinated communication among agencies of the Government to promote our country as a viable investment destination. Our improving credit rating is a critical element to such an investment decision.

Sama sama po tayong lahat sa lakbaying ito. Para sa bayan. Para sa mga mamamayang Pilipino.

Marami pong salamat.