A STRONG external position would anchor the Philippines’ “BBB+” investment grade credit rating amid the threat of rising prices and slower growth due to Russia’s continued invasion of Ukraine, S&P Global Ratings said on Thursday.
However, the debt watcher warned that this could widen the country’s budget deficit.
“As a net external creditor, the Philippines’ external settings remain supportive of the ratings,” S&P said in a note. “On a net basis, lower real gross domestic product (GDP) growth and a modest current account deficit may increase the government’s fiscal deficit.”
S&P in May 2021 affirmed the country’s “BBB+” investment grade rating, with a stable outlook, meaning it was likely to stay in the next 12 to 18 months. The government had targeted to get a rating upgrade to A- before the world was hit by a coronavirus pandemic.
Earlier this month, S&P lowered its growth forecast for the Philippines this year to 6.5% from 7%, citing the impact of the war in Ukraine on global oil prices. This is below the government’s 7-9% goal.
S&P said oil subsidies given to affected sectors such as the transport and agriculture sectors have been “modest and unlikely to dent its fiscal performance.”
S&P warned that monetary policy tightening by the US Federal Reserve could affect sovereign borrowers in Southeast Asia.
“With US interest rates on the rise, dollar-funding costs will be a key watchpoint for borrowers such as Indonesia and the Philippines, which actively issue in dollars,” it said.
“However, the immediate effect of rising interest costs will likely remain manageable. Both governments over the past two years have made more use of domestic debt markets to fund higher fiscal deficits,” it added.
The credit rating company said members of the Association of Southeast Asian Nations might experience higher interest burden amid a sustained increase in both foreign and local currency rates. The Philippines, Indonesia and Malaysia are among countries that have increased debt levels during the pandemic.
Outstanding Philippine government debt has risen by a fifth to P11.73 trillion, pushing the debt-to-GDP ratio to a 16-year high of 60.5%. This is higher than the 60% threshold considered manageable by multilateral lenders for developing economies. — Luz Wendy T. Noble
