By Luisa Maria Jacinta C. Jocson, Reporter
THE PHILIPPINES’ credit rating may be upgraded if the economy grows faster than expected, S&P Global Ratings said.
“On the upside for us, the Philippines’ ratings could be raised if the economic recovery is even faster than what we currently project and if the government achieves even faster fiscal consolidation,” YeeFarn Phua, director at S&P Global Ratings, said in a webinar on Tuesday.
The Philippines currently holds a “BBB+” rating with a “stable” outlook from the debt watcher.
“The outlook on the sovereign ratings remains stable. Basically, this stable outlook reflects our expectation that the economy will continue to grow healthily,” Mr. Phua said.
The credit rater expects Philippine gross domestic product (GDP) growth to average 5.8% this year and 6.1% in 2025. These are both below the government’s 6-7% and 6.5-7.5% growth targets for this year and next, respectively.
In the second quarter of the year, Philippine GDP grew by 6.3%, the fastest since 6.4% in the first quarter of 2023. This brought the first semester growth to 6%.
Mr. Phua said the outlook is also “balanced by the fact that we believe fiscal performance will also improve over the next 24 months.”
The National Government’s (NG) budget deficit widened by 7.2% to P642.8 billion in the January-to-July period, latest data from the Treasury showed.
Mr. Phua also flagged potential risks, such as an economic slowdown, that could hinder a credit upgrade for the Philippines.
“On the downside, however, we believe that if economic recovery were to weaken, leading to the long-term growth rates below its peers, this will also lead to an associated weakening of the government’s fiscal and debt positions,” he said.
He also noted risks to external settings, such as the current account deficit.
“If we see that the (current account deficit) starts to get persistently large, this will actually lead to a structural weakening of the Philippines’ external balance sheet. And we believe this could exert downward pressure on the ratings.”
In the second quarter, the current account deficit reached $5.1 billion, which accounts for 4.6% of GDP. The BSP projects a $4.7-billion current account deficit for 2024, equivalent to 1% of GDP.
Meanwhile, Mr. Phua noted that S&P Global’s lower-than-expected growth forecasts for the Philippines are due to still-elevated interest rates.
“So far, the BSP has only cut once. Therefore, our expectation is that we expect the cutting phase to be done gradually over the next year or so. And therefore, monetary policy will still remain tighter than normal for a while more,” he said.
Last month, the Monetary Board delivered a 25-basis-point (bp) rate cut and brought the key rate to 6.25% from the over 17-year high of 6.5%. This was the first time the central bank cut rates since November 2020.
Prior to this, the central bank raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023 to tame inflation.
“At the same time, we are also seeing the consumption and investments are also showing slowing momentum than usual,” Mr. Phua said.
“We believe this could last for some more time, given as the central bank moves tend to be a bit more long and variable lags before they can start to impact the real economy.”