Asia's Rising Economic Star: The Philippines?


The Philippines continued a strong 2013 this week when Standard & Poor’s (S&P) raised its credit rating for the country. This upgrade was significant for two reasons.

Firstly, Standard & Poor’s upgrade, from BB+ to BBB-, means that the financial services company now considers the country and its debt to be “investment” grade.  The “stable” outlook concurrently assigned to the rating suggests that Manila is continuing to do a good job in handling the country’s economy.

Secondly, the S&P upgrade follows a similar move by fellow “big 3” ratings agency Fitch at the end of March. Fitch also upgraded the country from a non-investment (sometimes called “speculative”) grade to the all-important “investment” grade of BBB-.

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This second upgrade from S&P is therefore of particularly importance. With two out of the three major credit ratings agencies (the other being Moody’s) having assigned an “investment” grade rating to the Philippines, Manila’s bonds can now be included in key global investment funds which limit their exposure to investment grade government securities.  Moody’s currently rates the Philippines’ debt at one notch below “investment” grade, so it is clear that this is close to becoming a consensus decision.

The International Monetary Fund (IMF) last week raised its economic outlook for the country too, even as it cut its 2013 and 2014 growth forecasts for China, Taiwan, India, South Korea and Singapore. 

Indeed,economic growth in the Philippines improved quite significantly since Benigno Aquino III was elected president in 2010. The economy expanded 6.6 percent last year, partly due to robust domestic demand and a rising stock market. The government deficit is being brought under control and, unlike many other emerging markets such as China, the Philippines’ boasts favorable demographic trends with a large working age population through 2050.

The resulting positivity and investment interest has caused the peso, the Filipino currency, to continue rising. Despite the risks that this may pose to exporters, so far the effect has been to temper inflation, as imports remain relatively cheap with the stronger currency. S&P’s move reinforced this trend, and also caused yields on Philippine peso bonds to fall.

Not everything is rosy however.  For instance, although workers are increasingly returning home, the economy still has an abnormal number of “remittance” workers abroad, which constituted about 8 percent of GDP last year.  What’s more, in the same report mentioned above, the IMF warned that Manila will need to continue improving its institutions and invest more in infrastructure.

Despite these challenges, Fitch and now Standard and Poor’s positive outlook for the country has demonstrated that Aquino administration is on the right track with its “good governance is good economics” philosophy.

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