Japan's official debt watcher has upgraded the country to investment grade, a statement said on Tuesday (May 7, 2013).
Japan Credit Rating Agency Ltd. revised its credit rating for the Philippines to BBB- from BB+, up one notch. The rating has a stable outlook.
The upgrade followed similar actions from major credit raters, Fitch Ratings and Standard & Poor's Ratings Services (S&P). Fitch raised the country's sovereign rating last March, while S&P did it last week.
In its statement, JCRA noted of the country's "robust economic growth" achieved against the backdrop of "sound fiscal management."
In particular, the Philippines is projected to grow "around six percent in the years to come" buoyed mainly by large remittances from overseas Filipino workers (OFW), which are driving domestic demand.
"Its current account remains in surplus backed by OFW remittances and business process outsourcing revenues," the agency said.
This, in effect, will further strengthen the country's external position through accumulation of foreign reserves that will "enhance our resilience to external shocks."
The balance of payments- which summarizes all inflows and outflows in a particular economy- hit a surplus of $1.535 billion as of the first quarter, central bank data show.
It is expected to widen to $3 billion by year-end, driven by remittances projected to grow by an average of five percent this year.
As of February, cash remittances are already up seven percent to $3.363 billion, figures showed.
"The country's financial system remained sound," JCRA said.
"Philippine banks remained well capitalized with their average capital adequacy ratio kept high at 19 percent as of end-September 2012 as against the 10-percent regulatory standard set by the Bangko Sentral ng Pilipinas (BSP)," it added.
In addition, the government's balance sheet has remained in check, with the budget deficit at just 2.3 percent of economic output last year, lower than the 2.6-percent target.
Debts have also been managed well, JCRA said, pointing to successful efforts of lengthening debt payment terms and focus on borrowing in pesos to reduce foreign exchange exposure.
"The increase in the excise tax in tobacco and alcohol in 2013 may help expand revenues in the years ahead," it explained.
Moving forward, the Aquino administration should set its sights in improving the country's infrastructure by further "strengthening its tax base" to fund investment projects.
The BSP, for its part, should encourage further "deepening and diversification" of the financial markets to better utilize capital flows, JCRA explained.
"As the uncertainty persists over the prospects of the global economy, especially the European economy, JCRA will closely monitor its future developments and their possible impact to the Philippine economy," the agency said.
