173 0 0 7 min to read

Following the change in rating outlook, there was only a little increase in the cost of PH credit

Following Fitch Ratings’ decision on Monday to alter the outlook on the Philippines’ BBB credit rating from stable to negative, an economist predicts “some risk premium adjustments.”

Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort responded to PNA’s e-mailed questions by saying that the country’s credit rating outlook downgrade may result in “some uptick in local interest rates/credit costs and some healthy profit-taking in the local financial markets.”

“However, these should be minimal/negligible because there is still a chance to avoid an actual credit rating downgrade in the coming months, as the Philippines would remain in the investment-grade universe, regardless of the outcome, especially if economic recovery prospects improve in light of continued arrivals of more Covid-19 (coronavirus disease 2019) vaccines in the Philippines,” says the report.

Fitch has maintained the country’s credit rating at BBB, one notch higher than the minimum investment grade it has assigned since 2017.

It maintained the grade, citing the country’s strong external buffers and the assumption that government debt levels would stay below the BBB median peers.

According to Ricafort, the government’s decision to keep the economy open is expected to mitigate the economic impact of the pandemic because it will increase tax revenue collections and reduce pandemic-related spending, lowering the budget deficit and slowing the growth of the country’s liabilities.

While state expenditure rose as a result of initiatives targeted at reducing the effect of the virus-induced pandemic on people and the economy, he stated the country’s internal foundations and foreign position remain solid.

“As a result, improved economic recovery prospects, which would partly help improve the country’s fiscal performance in terms of narrower budget deficits and slower growth in the country’s debt stock, with the debt-to-GDP (gross domestic product) ratio eventually ease/cure with faster GDP growth in the coming months/years, would all help prevent an actual downgrade of the country’s creditworthiness.

However, according to Ricafort, dangers persist, in part, because of the relatively large number of domestic illnesses and the possibility of more infectious varieties, which may result in lockdown and travel restrictions.

Fitch Ratings raised the country’s rating from BB+ to BBB- with a stable outlook in March 2013, giving it its first investment-grade rating.

This comes after the debt watchdog highlighted, among other things, that the country’s balance sheet is similar to that of A-rated nations and that the country’s status as a “net creditor” has shifted as a result of ongoing current account surpluses owing to remittance inflows.

In May of the same year, S&P raised the country’s rating to investment grade, BBB- with a stable outlook, while Moody’s Investors Service upgraded it to Baa3 with a positive outlook in October of the same year.

Since then, the nation has earned many additional upgrades and has even managed to maintain its ratings and outlooks for 2020, despite downgrades for other countries owing to the pandemic’s effect.

These positive rating moves, according to Ricafort, helped decrease the country’s borrowing costs and risk premiums, allowing the government to expand its budgetary space and invest in more social safety net and infrastructure projects.

The confirmation of the country’s credit rating, according to Socioeconomic Planning Secretary Karl Chua, “is a statement of confidence in the country’s economic and budgetary management despite the severe impacts of the epidemic.”

“The negative outlook highlights the risks we are aware of, and the economic team will continue to work to open the economy safely, manage Covid risks, accelerate vaccine deployment, prudently use fiscal resources, and enact the remaining economic and fiscal reforms to improve growth prospects,” he added.

The effect of the epidemic on the economy, according to Finance Secretary Carlos Dominguez III, is substantial. “This will only be for a short time.”

“In reality, the economy is already on a strong recovery path, with double-digit growth in the second quarter of this year, owing to the vaccination rollout’s rapid implementation and economic recovery measures,” he added.

Economic planners have set growth targets of 6-7 percent this year and 7-9 percent next year.

Governor Benjamin Diokno of the Bangko Sentral ng Pilipinas (BSP) believes the pandemic’s economic effect would be temporary.

“The severe economic recession last year was mainly driven by tight containment efforts to limit the spread of the virus, preserve lives, and expand the capacity of the healthcare system,” according to Diokno.

“We anticipate the green shoots of recovery to strengthen and the economy to return to its strong development path as the government advances the immunization program and implements recovery measures,” he added.

Economic managers, according to Diokno, have realized that the growth forecast is fraught with dangers.

“Our strong foundations and continuing reform efforts, on the other hand, should take us through to a robust rebound—to a state that is well-calibrated to the developing new economy,” he said.

QR Code

Save/Share this story with QR CODE


Disclaimer

This article is for informational purposes only and does not constitute endorsement of any specific technologies or methodologies and financial advice or endorsement of any specific products or services.

📩 Need to get in touch?

Feel free to Email Us for comments, suggestions, reviews, or anything else.


We appreciate your reading. 😊Simple Ways To Say Thanks & Support Us:
1.) ❤️GIVE A TIP. Send a small donation thru Paypal😊❤️
Your DONATION will be used to fund and maintain NEXTGENDAY.com
Subscribers in the Philippines can make donations to mobile number 0917 906 3081, thru GCash.
3.) 🛒 BUY or SIGN UP to our AFFILIATE PARTNERS.
4.) 👍 Give this news article a THUMBS UP, and Leave a Comment (at Least Five Words).


AFFILIATE PARTNERS
LiveGood
World Class Nutritional Supplements - Buy Highest Quality Products, Purest Most Healthy Ingredients, Direct to your Door! Up to 90% OFF.
Join LiveGood Today - A company created to satisfy the world's most demanding leaders and entrepreneurs, with the best compensation plan today.


0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x