Hard work pays off for investment-grade Philippines

The country is now rated investment grade by all three rating agencies, but the real thanks should go to overseas workers rather than the government.
Finance minister Cesar Purisima says the Philippines is still among the most under-rated countries
Finance minister Cesar Purisima says the Philippines is still among the most under-rated countries

The Philippines secured a full investment-grade credit rating yesterday after Moody’s fell into line with other major rating agencies and upgraded the country by one notch to Baa3 from Ba1.

The rating agency said its decision reflected a “structural shift to higher growth”.

The Philippines has enjoyed 47 consecutive quarters of positive economic growth, with gross domestic product expanding by 6.8% during 2012 and by 7.6% in the first half of 2013. Helped by low inflation and low interest rates, the country is growing faster than most of the rest of the world.

Moody’s upgrade means that the Philippines now has an investment-grade rating from all three international rating agencies.

Cesar Purisima, the finance minister, welcomed the decision but complained that Moody's Standard & Poor's and Fitch were all still failing to reflect the country’s real creditworthiness.

“We are still among the most under-rated countries since the market rates us at least two notches above investment grade,” he said in a statement.

From a high of 825 basis points in October 2008, credit default swaps for five-year Philippine government bonds are now trading at 120bp, compared with 130bp for Baa1-rated Thailand and 253bp for Indonesia, which is rated at the same Baa3 level.

Purisima was quick to take credit for the upgrade on behalf of the government. “The Philippines’ sound fiscal and monetary policy have been validated yet again, proof that President (Benigno) Aquino’s goal to restore confidence in the Philippines and revitalise the economy has been a success.”

Aquino, elected in 2010, has certainly been more prudent than some of his predecessors, such as Joseph Estrada and Ferdinand Marcos, but his government also benefits from a gift that keeps on giving: remittances from the 15 million overseas Filipino workers, who have already sent home more than $12 billion so far this year — a 5.8% rise from the same period last year.

This windfall means that remittances are more than enough to service the government’s $125 billion national debt, given ultra-low interest rates, which has allowed the government to avoid addressing much-needed tax reform.

Stephen CuUnjieng, chairman of Evercore in Asia, described the upgrade as a “tribute to many generations of hard work by successive administrations to alleviate the burden left by the Marcos legacy,” but was also keen to stress that the real thanks should go to the country’s army of overseas workers.

“The country's current account surplus, which plays an outsize role in the investment-grade status, in my view, goes to the sacrifice and hard work of the millions of overseas Filipinos who are the real heroes of the Philippines."

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