S&P maintains BBB+ rating, stable outlook for PH with economy ‘beginning to recover’

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Metro Manila (CNN Philippines, May 27) — S&P Global Ratings has retained its credit rating for the Philippines despite the immense COVID-19 health crisis, noting the national economy is “beginning to recover.”

The global debt watcher said it affirmed its “BBB+” credit rating for the country. A notch closer to the minimum rating for the “A” level, this attests to the national economy’s stability and the government’s ability to pay its loans. A better rating allows nations to avail cheaper debts overseas.

“[W]e believe the Philippines will continue to have good economic recovery prospects once the COVID-19 pandemic is contained, and that the government's fiscal performance will strengthen accordingly,” said S&P in a statement on Thursday.

The credit rater also maintained its “stable” outlook for the Philippine economy, expecting it to bounce back to “healthy rates of growth.” With the better containment of the pandemic, the state’s fiscal performance will “materially” improve, it said.

“Although the government's fiscal and debt settings have deteriorated due to the economic fallout from the COVID-19 pandemic and the associated extraordinary policy responses, its long track record of fiscal prudence provided a buffer to key metrics,” explained S&P.

It noted that the Philippines’ net debt rose to 38.5% of gross domestic output in 2020 from 2019’s 28.9%. While S&P expects this will jump to 41.7% this year with authorities providing support to an otherwise ‘”fragile” economic recovery, it notes this figure is “comparable or lower” than that of the country’s international peers.

The government has resorted to borrowing both domestically and multilaterally as it strengthens its war chest against the highly contagious diseases. Loans also cover its procurement of COVID-19 shots.

While S&P expects economic output to bounce back at a slow pace this year — the recent surge in coronavirus infections in Luzon being a huge factor — it still forecasts a 7.9% GDP growth in 2021.

“This will be largely due to base effects, but will also be driven by wider deployment of vaccines, a recovery in the global economy, and the government's expansionary fiscal measures,” it said, adding more inoculations will allow economic activities to normalize faster toward year-end.

S&P’s forecast is way above the economic team’s downscaled 6-7% growth target range for the economy this year. 

Finance Secretary Carlos Dominguez welcomed the rating affirmation, noting how the country’s “solid financial buffers and prudent fiscal management” provided a relatively strong position to come up with funds for its pandemic response “without touching off a worrisome debt situation down the road.”

The national outstanding debt has breached ₱10.7 trillion as of end-March, according to data from the Treasury Bureau. 

The finance chief likewise said the development supports the hope of reverting the Philippines’ debt and deficit ratios and growth trajectory to pre-COVID-19 levels.

“The move of S&P to keep the country’s BBB+ credit rating echoes our view that the impact of the COVID-19 crisis on the economy will be transitory and that the Philippines continues to enjoy bright medium-term growth prospects,” said Bangko Sentral ng Pilipinas Governor Benjamin Diokno.

S&P likewise said it hopes economic growth will speed up all the more in 2022 as COVID-19 vaccinations further pick up and the health crisis becomes more contained.

The Philippines currently remains in recession, with a 4.2% contraction in the first quarter of the year succeeding a 9.6% full-year shrinkage in 2020 as quarantine restrictions continue to hold back consumer and business activity.