OF SUBSTANCE AND SPIRIT
Diwa C. Guinigundo
I have used this chart many times in my previous life as a central banker at the Bangko Sentral ng Pilipinas (BSP). I would use this to show the resilience of the Philippine economy owing to decades of embracing policy and structural reforms. This chart was also useful when I needed to demonstrate that we shrugged off the impact of the Global Financial Crisis (GFC) of 2007-2009. And of course, when we showed this to the major credit rating agencies (CRAs) to prove we have become stranger to the cycle of booms and busts, they were incredulous. But they could not deny that when this study from Liliana Rojas-Suarez of the Washington-based Center for Global Development (CGD) came out in 2015, the Philippines was on its 17th year of sustained, uninterrupted positive economic growth.
This chart is more than a marker of the country’s journey to greater economic resiliency. It is a testament of the late President Benigno S. Aquino III’s (PNoy) quiet but lofty contribution to a most resilient Philippine economy. His bosses were the immediate beneficiaries of more jobs and more income.
Rojas-Suarez used as determinants of resilience such macroeconomic factors comprising cost and availability of foreign financing and ability to respond to global shocks like fiscal spending and public debt, and combined them into a single overall indicator of resilience.
Before the GFC, the Philippines ranked 7th behind Chile, China, South Korea, Indonesia, Peru and Thailand. On its 9th year of successive economic growth, the Philippines in 2007 achieved real GDP growth of 6.5 percent. We scored high in our balance of payments (BOP), steady path of external debt and increasing FX reserves. With key fiscal reforms undertaken in earlier years, particularly the value added tax (VAT), revenues were rising while public debt was way below global indicative ceilings. Domestic inflation stood at only 2.9 percent, lower than the four to five percent inflation target for the year.
Seven years later in 2014, the Philippines steamed ahead of South Korea, China, Chile, Thailand, Peru and Indonesia to be the most resilient emerging market out of 21 economies. From 2008-2014, President Gloria Macapagal-Arroyo (GMA) was accountable for two years and for the rest, the late PNoy. GMA’s two-year share contributed to the economic success. Pinoy proved to be a good steward of talent and multiplied it.
Under PNoy’s four-year watch, the Philippines experienced an excellent convergence of higher real GDP growth, lower inflation, healthy BOP, declining external debt to GDP ratio and increasing FX reserves. With the VAT reforms behind him, Pnoy was also credited with the adjustment in sin taxes, reproductive health and educational reform. Public revenues rose higher than before, allowing huge prepayments of foreign loans.
With high import coverage of its FX reserves, the Philippines was invited by the IMF in 2010 to participate in establishing the $456 billion firewall fund for an ailing Europe. With the country’s very comfortable BOP, the BSP pledged $1 billion from its reserves after securing the approval of the President pursuant to the BSP charter.
It was also during this period that the Philippines became a net creditor to the IMF, having lent money to the Fund’s New Arrangement to Borrow (October 2011) and the Financial Transaction Plan (August 2010), both of which are aimed at helping distressed members.
This positive action by the CGD was affirmed by the three CRAs in the four years of Pinoy.
Fitch’s credit upgrade moved the Philippines up from BB+ in June 2011 to BBB- in March 2013. We continue to enjoy the BBB rating upgrade in December 2017, and recently affirmed last January 2021.
There were more credit upgrades by Moody’s between 2010 and 2014: from Ba3 to Ba2 in June 2011, to Ba1 in October 2012, to Baa3 in October 2013 and Baa2 in December 2014 and recently affirmed in December 2020.
Standard and Poor’s was also aggressive in its credit upgrade of the country. In November 2010, S&P elevated the Philippines from BB- to BB, to BB+ in July 2012, to BBB- in May 2013, to BBB in May 2014. In April 2019, S&P rated us worthy of BBB+. This was affirmed last May 2021.
We secured investment grade from two out of three CRAs prior to CGD’s affirmative ranking. It was also during this period that we scored enormous gains in terms of corruption index, transparency, ease of doing business and economic freedom. The global capital markets also cast their votes in favor of the Philippines by allowing both the Philippine sovereign and corporates to borrow at very tight spreads comparable to jurisdictions with even higher credit rating. Lower cost of borrowing translated into higher production, higher employment and higher income.
PNoy did his homework and delivered on his campaign promises on the economic front. Both the government and private firms proved that good credit ratings can be eaten. His bosses rejoiced.