Moody’s Ratings has affirmed the Philippines “Baa2” investment-grade credit rating with a firm “stable” outlook, citing the country’s “robust” macroeconomic fundamentals, efforts to liberalize the local economy and to strengthen fiscal consolidation.
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said Friday, Aug. 23, that the Moody’s affirmation in maintaining the investment-grade rating emboldens them to continue to “work with the government to improve the country’s ratings.”
“We are taking a measured approach in safeguarding price stability conducive to sustainable economic growth,” he said.
Moody’s again recognized the government and BSP’s efforts to implement all efforts to improve macroeconomic fundamentals. The credit rating agency said the “passage of reforms over the past several years to liberalize the Philippine economy will support medium-term growth potential by supporting a business-friendly environment and attracting foreign investments.”
The country reported a second quarter 2024 gross domestic product (GDP) growth of 6.3 percent year-on-year versus 5.8 percent in the first quarter.
The Philippines also attracted foreign direct investment (FDI) net inflows of $4 billion from January to May this year, up by 15.8 percent compared to $3.5 billion same time in 2023.
BSP said Moody’s expects FDI inflows to continue rising in 2024 and in 2025. “These inflows will be driven by strong investor interest in the energy, manufacturing, and information and communications sectors. It also noted the Marcos administration’s goal of increasing infrastructure investments at 5.0 percent of GDP annually under the ‘Build Better More’ initiative, which will reduce the country’s infrastructure gap,” said the central bank.
The country’s inflation averaged 3.7 percent during the first seven months of the year, which is within the BSP’s target range of two to four percent. The BSP said inflation could follow a general downtrend beginning August.
Last Aug. 15, the BSP's Monetary Board cut the benchmark policy rate by 25 basis points from 6.50 percent to 6.25 percent. The last interest rate reduction was Nov. 19, 2020.
The banking system, on the other hand, also continues to support the country’s financial needs with robust growth in bank assets, loans, deposits, coupled with adequate capitalization and liquidity, said the BSP.
Moody’s stable outlook reflects a balance of risks. The BSP noted that the upward credit pressure “could come from improved fiscal metrics, strong growth, and higher public and private investments, while downward risks include external challenges that could weaken consumption and investment or ineffective reforms.”
Meanwhile, an investment-grade rating signifies low sovereign risk, helping the country secure cheaper funding and redirect funds from interest payments to social programs and projects, it added.
Moody’s credit rating affirmation follows last week’s Rating and Investment Information Inc. (R&I) upgrade of its rating on the Philippines from the “BBB+” with positive outlook last year, to “A-” with stable outlook.
This was a higher A- investment grade rating from R&I, a Japanese credit rating agency. It is the second A-level rating the country has secured after the Japan Credit Rating Agency Ltd. upgraded the country to “A-” in 2020.
The BSP said R&I also cited the Philippines’ macroeconomic stability, high economic growth path, and favorable fiscal outlook.
Remolona commented last week that with an improving credit rating, the BSP will continue to ensure price stability, financial stability, “and a safe and efficient payments and settlements system” to support a sustained and inclusive economic growth.
An “A-” indicates an investment-grade rating and lower credit risk which allows a country to access funding from development partners and international debt capital markets at lower cost. It also enables the government to channel funds that would have otherwise been allotted for interest payments to socially beneficial programs and projects.