Empowering the Economy: Philippines' Credit Rating Upgrade
In a momentous stride towards economic progress, the Philippines received a laudable boost as Standard & Poor's (S&P) elevated its credit rating from "BBB" to "BBB+." This achievement, accredited to the adept economic management, marks a significant milestone for the nation's financial trajectory.
For the everyday individual, comprehending a credit rating can be likened to gauging one's ability to settle debts promptly—an elevated credit rating signifies enhanced financial capacity. The spectrum of credit ratings extends from the pinnacle of Triple A (AAA) to the nadir of D. Within this spectrum, bonds securing a credit rating of BBB- or higher are classified as investment grade by S&P, while those rated BB+ and below tread the realm of speculative grade, colloquially labeled "junk" bonds.
Visualizing a credit rating as an informed rumor and the credit rating agency as an astute neighbor paints an apt analogy. Just as an appreciative neighbor's commendations can cement friendships, favorable credit ratings can cultivate strong investor relationships. Even a benevolent acquaintance, like "Tony" the Indian national, might extend financial assistance during exigencies.
Conversely, if your neighbor doesn't hold you in high regard, you might find yourself bereft of support, particularly concerning monetary matters. Tony, in this instance, would likely overlook your plea for assistance. When confronted with a cash crunch, you may resort to enticing Tony with a promise of repaying a loan at an elevated interest rate—25 percent instead of 20 percent—for a month. Failing this, you might escalate the offer to 30 percent or venture beyond your immediate vicinity in pursuit of creditors.
Resonating Notions: The Parallels Between Individuals and Nations
Similar dynamics unfold for countries (sovereigns) and private enterprises in dire need of funds. A nation that expends more than it earns, a recurring phenomenon for the Philippines, resorts to borrowing. However, an elevated credit rating, analogous to the country's present status, facilitates seamless access to creditors or investors.
Consequently, the nation averts the need to grapple with exorbitant interest rates and discounts on borrowed funds, thereby mitigating budget deficit challenges. The healthy competition triggered by public auctions, such as the weekly Treasury Bills and Bonds auctions, drives borrowing costs down. These proceedings constitute the bedrock of national government (NG) debt, with a staggering Php5.2 trillion recorded as of March 2019. This sum represents 67 percent of total NG debt, while the remaining 33 percent comprises external debt.
Averting Fiscal Strain: The Taxpayer's Triumph
Elevating credit ratings bestow taxpayers with a windfall of benefits. Empowered by accessible funds, the government propels its developmental agenda, catalyzing the provision of vital social services and imperative infrastructure.
S&P's rationale for the rating upgrade underscores the Philippines' robust economic growth trajectory, poised to engender positive development outcomes and reinforce credit metrics in the medium term. The rating stands fortified by the nation's sound fiscal stewardship, judicious debt management, and resilient external economic foundations.
In the eyes of taxpayers, these revelations translate as follows: (1) a continuation of the Philippines' sustained economic growth, (2) the fruition of government's fiscal reforms, (3) the upholding of a manageable debt-to-GDP ratio (currently at 44 percent), and (4) the enduring influence of diaspora surplus, primarily facilitated by Overseas Filipino Workers' remittances, fostering heightened local investment and consumption levels.
Economic stewards of the country are swift to claim responsibility for this credit rating elevation, rightfully so. Finance Secretary Carlos Dominguez III attributes the achievement to "President Duterte's strong leadership and his 10-point economic program." Bangko Sentral ng Pilipinas Governor Benjamin Diokno affirms that the credit rating surge validates the administration's unwavering economic course.
However, skepticism surrounding the infallibility of credit ratings persists. In 2011, the United States contested S&P's decision to downgrade its sovereign rating from Triple A to AA+. During the same period, Portugal criticized Moody's "junk" rating as more opinion-driven than evidence-backed.
In the competitive landscape of credit rating agencies, Moody's and S&P reign supreme, collectively commanding 80 percent of the credit ratings market. Meanwhile, the third major player, Fitch, assumes control over an additional 15 percent.
Fueling National Progress: The Road Ahead
As the Philippines soars to higher credit ratings, the nation's commitment to prudent fiscal management and economic growth gains prominence. This stride resonates as a beacon of optimism for taxpayers, forging an environment conducive to financial stability, developmental pursuits, and sustained economic prosperity.
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This is a rewrite of an articles first published on 13 May 2019 with the title "Of credit ratings - how a taxpayer may see them."
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