What does the S&P Rating mean for the Philippines?
Published: April 30, 2015 | Updated: July 3, 2020 | Posted by: Moneymax | Personal Finance
A country’s credit rating is an indicator of how well it might be doing in terms of its economy; the way it manages foreign debt, and how the government is managing the nation’s budget. This also provides insight for foreign investors as a potential source of growth.
Basically, the better a country’s credit rating is – the better chance it has to raise its investment grade, and attract investors. Standard & Poor’s is a bond ratings firm that releases information on a country’s credit rating and expresses how it may or may not be able to deliver on its financial obligations.
There are several investment grades, but in the case of the Philippines, the current S&P Rating is ‘BBB’. This means that the country has a fairly solid growth trajectory.
What does it mean, really?
Given the country’s current investment grade, it marks the Philippines a potential market for foreign investors due to sound fundamentals, an improving fiscal situation and a stable financial system.
An influx of foreign investors means the creation of more jobs, access to better benefits, less fluctuation in the price of goods, and possibly the most important thing for a country: being able to manage its foreign debt better. All of these mean an improvement to the standard living conditions in the country.
It doesn’t stop there, though. According to reports from Fitch, another debt watching agency, the country ended 2014 with $ 79.5 Billion in gross international reserves. The amount is enough to cover nearly a year’s worth of import costs (roughly 10.2 months, actually) and eliminate several short-term debts.
What comes next?
The Philippines is aiming to break out of the ‘BBB’ investment grade and into the ‘A’ class investment grade, starting with the minimum ‘A-‘ investment grade.
According to Financial Secretary Cesar Purisima, the ‘A’ grade is attainable given that the country remains underrated when its credit ratings are compared with how the market prices Philippine debt. Getting a better grade will depend on being able to meet the economic growth targets as projected by S&P.
At the moment, the agency projects that the country’s government budget deficit – an indicator of creditworthiness – will average at a one percent of gross domestic income from this year to 2019. While modest, it is better than the four percent that was prevalent in 2010.
Secretary Purisima cited initiatives toward good governance and being able to outperform the original targets and expectations of the economy as primary factors that will push the country towards its goal of a higher investment grade.
It’s good news for the country, and how the economy can be improved through the efforts of the government and the general populace.
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