Investment grade rating affirmed

THE PHILIPPINES again cemented its investment grade status with the Japan Credit Rating Agency (JCRA) affirming its rating and outlook on the country.

Affirmed were the BBB rating and stable outlook granted May last year, with the JCRA noting the Philippines’ continued resilience to external shocks, its robust economic growth, stable political climate and its healthy government finances.

The country is also deemed investment grade by the three major credit raters: Fitch Ratings, Standard & Poor’s, and Moody’s Investors Service.

The country’s economic growth, the JCRA noted, is supported by robust domestic demand underpinned by remittances, plus revenues from tourism and outsourcing that likewise buoy its external position.

“JCRA is of the view that the Philippine economy, achieving a 7.2% growth in 2013, will grow faster than 6% in 2014 on strong domestic demand,” it said in a statement.

The agency said it also expected the country to maintain its fiscal soundness as the government continued to enhance its tax collection efficiency and legislative reforms such as the rationalization of fiscal incentives.

“Despite the growing volatility of portfolio capital inflows and outflows, the concern over external liquidity is easing, given the country’s increasing foreign exchange reserves that are more than enough to cover its external debt.”

The JCRA, however, noted that its ratings were constrained by the Philippines’ “challenging investment environment, in particular its inadequate infrastructure...”.

“The country definitely needs to develop infrastructure and improve the investment environment to attain rapid and sustainable economic growth. JCR will watch how the government will address the challenge and how much progress it will make,” it said.

“It will be imperative for the government to further strengthen its tax base in order to ensure infrastructure development without undermining the momentum for improvement of its fiscal position.”

It also pointed out that while the banking sector remained healthy -- given the low amount of soured loans and adequate capital of institutions -- lending remained limited compared to the economy’s size.

This, the JCRA said, indicates “a further deepening and diversification of the financial sector is imperative to promote capital formation through increased equipment investment”. -- Bettina Faye V. Roc

source:  Businessworld