The Philippines is the only country in Asia that garners a positive action from IHS
MANILA, Philippines — The Philippines will be the only sovereign entity in Asia with improving credit prospects, making it a $1-trillion economy by 2030, Washington-based analytics firm IHS Global Insight said.
In its Sovereign Risk Review report for the third quarter of 2015, IHS said it upgraded its outlook on the Philippines’ credit rating to positive from stable, amid the trend of improving financial fundamentals, investor confidence, and governance standards in the Philippines.
The improved outlook means that the Philippines’ existing credit rating with IHS, set at the minimum investment grade of BBB- has a chance of being raised over the near term.
The Sovereign Risk Review compares and assesses every sovereign worldwide across ratings agencies.
IHS said in the report that what is more encouraging about the Philippines is that the strong macroeconomic fundamentals are combined with improvements in governance.
“Apart from the clearly strengthened macro-financials over the last few years, the more recent upgrade to the Philippines’ outlook to positive in the third quarter rested on improved governance standards and reforms enhancing competitiveness under the Aquino administration,” it said in the report.
The Philippines is the only country in Asia that garnered a positive action from IHS.
IHS recognized the Philippines’ comfortable liquidity as evidenced by sustained surpluses in its current account, as well as continually improving manageability of debt on the back of prudent fiscal management and growing economy.
The Philippines’ current account – fueled by remittances, revenues from the business process outsourcing industry, and tourism receipts, among others – posted a surplus of $4.7 billion during the first 6 months of 2015.
The country’s current account has been in surplus for 12 consecutive years, or since 2003.
The Philippines’ general government debt as a percentage of gross domestic product (GDP), a measure of debt manageability, is on a downward trend.
It stood at 36.2% as of end-June 2015, consistently declining from a peak of 68.1% in 2003.
“The Philippines has been on a long ratings upgrade trajectory over the last few years. The key driver to these upgrades has been successively strong current account surplus generation with newfound sources of export earnings other than workers’ remittances and lower energy import bills,” Jan Randolph, IHS director of sovereign risk, said in a statement.
Rajiv Biswas, IHS chief economist for Asia-Pacific, estimated that the Philippines, with a gross domestic product of about $292 billion, has the potential to become a $695-billion economy by 2025 and over a $1-trillion economy by 2030.
“Two important growth drivers for the Philippines’ economy are the rapidly growing information technology-business process outsourcing (IT-BPO) sector and the strong flow of remittances from Filipino workers abroad,” Biswas said.
“The rapid growth of the IT-BPO industry is also creating positive transmission effects for the rest of the economy, including rapid growth in demand for commercial floor space, underpinning the development of existing and new office parks in urban centers,” Biswas added.
Meanwhile, Investor Relations Office executive director Editha Martin said the favorable views of IHS on the Philippines would help in further improving international perception of the economy.
“Although the Philippines now enjoys investment grade sovereign credit ratings from a wide list of international debt watchers, further building confidence on the economy is a never-ending task as we aim for sustainability of gains. The positive assessment of IHS on the Philippines is a welcome development,” Martin said.
She cited the concrete benefits of favorable credit ratings, including lower interest rates on loans as well as business confidence that helps boost investments and job creation.