S&P Global Ratings (S&P) upgraded the Philippines’ credit rating outlook to “positive,” indicating a possible upgrade to an “A-” rating within 24 months, helping lower borrowing costs and making the country more attractive to investors.
S&P kept the sovereign credit ratings at “BBB+” for long-term and “A-2” for short-term.
S&P raised the outlook citing the country’s effective policy making, fiscal reforms, improved infrastructure and policy environment that have helped keep economic growth strong in the past decade. It also cited the recent passage of the CREATE MORE and PPP laws.
An improved rating or outlook helps the government borrow at lower interest rates, allowing it to fund more services and infrastructure. This also helps businesses borrow at lower rates, helping fund expansion and job creation.
“The BSP welcomes S&P’s decision. This reflects the work the government has done to improve the economic, fiscal and monetary environment, enabling strong growth to continue,” Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona, Jr. said.
“The BSP remains committed to promoting price stability, financial stability and an efficient payment system to support sustainable economic growth,” he said.
Finance Secretary Ralph G. Recto said S&P’s upgrade of the credit outlook is powerful endorsement of President Ferdinand Marcos Jr.’s leadership and the government’s sound economic and fiscal policies.
“It reaffirms our stable economic and political environment, and that we are on track to achieve a growth-enhancing fiscal consolidation. We have a comprehensive Road to A initiative to ensure that we secure more upgrades soon,” Recto said.
“The major benefit of having a high credit rating is wider access to cheaper and more cost-effective borrowing costs for the government and the private sector,” he said.
The latest credit rating development allowed the Philippines to maintain its high investment-grade status across all major regional and international debt rating agencies.
According to S&P, improved institutional assessment drives its positive outlook on the Philippines. “We believe the strengthening of the country’s institutional settings, which had contributed to a significant enhancement in the sovereign’s credit metrics over the past decade, will continue. This is demonstrated by the strong economic recovery in the last two years, and ongoing reforms to support business and investing conditions,” it said in a statement.
S& said the Philippines enjoys a solid economic outlook anchored by the government’s infrastructure drive, pro-business policies, and its well-established Medium-Term Fiscal Framework.
It expects the Philippines’ economic growth to remain strong in 2024 at 5.5 percent and continue to grow at a high rate of 6.2 percent annually over the next three years, supported by private consumption and improving external demand.
While global economic growth is expected to be slower due to external uncertainties, S&P believes that the Philippine economy would expand well above the average of its peers as the country has a diversified economy, supportive policy dynamics, and an improving investment climate.
S&P also noted the Philippines’ improving fiscal performance due to effective and prudent fiscal policies.
“The Marcos administration, elected in 2022, has demonstrated a commitment to the well-established medium-term fiscal framework that has delivered constructive development outcomes,” it said.
The government’s refined Medium-Term Fiscal Program ensures that the country will reduce its deficit and debt gradually in a realistic manner while creating more jobs, increasing people’s incomes, and decreasing poverty in the process.
The rating agency underscored that the country’s fiscal deficit remains manageable and that normalization of economic growth will help to lower the general government deficit to 4 percent of GDP in 2024 from 4.5 percent in 2023, and average around 3.3 percent of GDP over the next three years.
It said the Philippines’ debt remains stable, with its general government debt ratio continuing to be relatively lower compared to its peers. The ratio is expected to fall to 40.6 percent by 2027 from 41.7 percent in 2023 as fiscal consolidation takes hold.
It also spotlighted the Philippines’ improvements in the quality of expenditure, which further solidified its economic profile.
About 33.4 percent of the government’s proposed national budget of P6.35 trillion is allotted to social services to fund education, health and employment sectors in 2025. Economic services, which include the ‘Build, Better, More’ infrastructure program, will receive about 29.2 percent of the budget.
S&P also noted a recent slowdown in inflation, with prices rising by only 3.4 percent in the first nine months of 2024, down from 6.0 percent in previous year.
Remolona said the Philippines has ample reserves to protect against global economic fluctuations. As of end-October 2024, the country’s gross international reserves rose to $111.1 billion, enough to cover 8 months’ worth of imports and above the three-month benchmark suggested by the International Monetary Fund.
S&P has commended the BSP’s strengthened oversight of the financial sector, contributing to improved stability.
The BSP confirmed that Philippine banks are well-capitalized and highly liquid, with capital adequacy and liquidity ratios surpassing both BSP regulatory and international standards.
S&P raised the Philippines’ rating to its current level in 2019, BBB- in 201, and BBB in 2014. The next level is A-, the entry point to A ratings. Moody’s and Fitch rate the Philippines Baa2 and BBB, which are one level below the S&P rating.
