The credit-standing of the Philippines got its second boost in less than a month, with an international body recognizing the country’s improved political climate and healthier debt profile.
London-based think-tank Economist Intelligence Unit (EIU) upgraded the country’s sovereign risk rating by a notch to BBB from BB, citing the declining proportion of the state’s outstanding debt relative to the size of the economy.
“[The upgrade reflects] ongoing improvements in the country’s public debt position,” EIU said in a June 20 report released last Friday.
EIU’s upgrade comes on the heels of a similar move this month by Japan’s R&I, which raised the country’s sovereign rating by a notch.
Credit ratings are direct indications of a country’s risk profile, which dictates the cost of borrowing for the government. Higher ratings mean cheaper borrowing costs. Ratings also serve as proxies for the health of the Philippine economy.
According to ratings of EIU, a BBB grade indicates the capacity and commitment to honor debt obligations and only slight susceptibility to changes in economic climate.
The country’s debt-GDP ratio consistently dropped from 54.8 percent in 2009 to 49.2 percent last year, EIU noted.
“As a proportion of GDP, expenditure will rise gradually as the government seeks to increase social spending, particularly on vital infrastructure. This will help boost economic expansion and revenue collection,” EIU said.
At the same time, EIU upgraded the country’s political risk rating by a step from CCC to B mainly on account of the latest peace accord between the Aquino administration and Muslim rebels.
This is the first time for EIU to elevate the country from C to the B category in terms of political risk.
Written by: Paolo G. Montecillo