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Japan credit watcher affirms PHL credit rating


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The Japan Credit Rating Agency (JCR) has maintained the Philippines’ credit rating at ‘A-‘ with a “stable” outlook due to the country’s strong growth amid high inflation.

“The ratings mainly reflect the country’s high and sustained economic growth performance underpinned by solid domestic demand and its resilience to external shocks,” the agency said in a press release on Friday.

JCR said the country’s resilient growth is supported by an external debt kept low relative to gross domestic product (GDP) and high dollar reserves. However, income disparity still needs to be addressed. 

“The economy was generally on a recovery path in 2022 backed by strong private consumption as the COVID-19 (coronavirus disease 2019) pandemic subsided, with its real GDP recovering to exceed the pre-pandemic level,” it added.

Last year, the Philippine economy expanded by 7.6%, exceeding the government’s 6.5-7.5% target, data from the Philippine Statistics Authority showed. It was also the country’s best growth since 1976 and one of the strongest in the region.

Household consumption also rose by 8.3% in 2022 from a year earlier. On the demand side, household spending was the biggest contributor to GDP.

According to the JCR, strong private consumption in the country last year was fueled by improved employment, increased mobility, and strong remittances. 

The country’s unemployment rate eased to 5.4% last year, its lowest since the 5.1% in 2019 or before the pandemic.

Based on central bank data, cash remittances hit a record high in 2022, jumping by 3.6% to $32.54 billion last year. It exceeded the previous record of $31.42 billion in 2021.

However, JCR said it sees the country’s real GDP slowing to 6% due to high inflation and continued policy tightening, hitting the lower end of the government’s 6-7% target. 

Headline inflation slowed to 8.6% in February, from the 14-year high 8.7% in January. Still, this was faster than the 3% in February 2022. 

February marked the 11th straight month inflation was above the 2-4% target of the central bank.

To tame inflation, the Bangko Sentral ng Pilipinas (BSP) raised the benchmark interest rates by 400 basis points (bps) since May 2022, bringing the key policy rate to a near 16-year high of 6%. 

Meanwhile, the country’s banking industry remains healthy, the credit rater said, as the gross non-performing loan (NPL) ratio fell to 3.2% at end-2022, 

It also cited the Philippines’ external debt balance, which was “kept contained” at 26.8% of GDP as of end-September last year, while dollar reserves stood at $99.3 billion at end-February. 

“These indicate the robustness of the country’s foreign currency liquidity position. JCR holds the view that the country will show its high resilience even when global risk-off moves are triggered again,” it said. 

The agency also said it maintained the country’s “stable” outlook as the economy is seen to stay “highly resilient” against external shocks.

The Department of Finance (DOF) said in a press release that the ‘A-’ credit rating with “stable” outlook means lower credit risks and gives the country better access to the international bond market and favorable interest rates.

“Moreover, it increases investor confidence in the country that may lead to more foreign direct investments (FDIs),” the DOF added.

Data released by the BSP on Friday showed FDI inflows reached $9.2 billion in 2022, 23.2% lower than the $12 billion net inflows seen in 2021. However, it surpassed the $8.5-billion projection of the central bank for the year.

Meanwhile, the debt watcher said the budget deficit remained high last year due to “increased spending to sustain economic recovery,” adding that expanding the tax base and improving fiscal expenditures is crucial to bring down deficit and debt levels.

The national government’s fiscal deficit reached P1.61 trillion in 2022,  higher than the revised P1.502-trillion target set by the Development Budget Coordination Committee (DBCC).

This brought the fiscal deficit to 7.33% of GDP, exceeding the DBCC target of 6.9%. This year, the government expects the deficit to settle at 6.1% of GDP.

“Before the pandemic, the government had promoted a policy aimed for fiscal soundness by keeping the budget deficit at about 3% of GDP. The deficit has been widening since 2020 due to the impact of pandemic measures,” JCR said.

The national government’s outstanding debt stood at P13.42 trillion last year, bringing the debt stock to 60.9% of GDP. This was lower than the 61.8% target, but still above the 60% threshold considered manageable by multilateral lenders for developing economies.

The government aims to bring down the debt-to-GDP ratio to less than 60% by 2025, and to 51.5% by 2028.

JCR also noted the Philippine government’s commitment to emphasizing infrastructure development.

Under the Philippine Development Plan, the government plans to spend 5-6% on infrastructure.

“The sustained infrastructure development is expected to have an effect of underpinning the recovery of the economy. In addition, the plan sets an important goal of reducing the poverty rate from 18.1% in 2021 to less than 9% by 2028,” it said.

Finance Secretary Benjamin E. Diokno in a statement said that the administration is “committed to maintaining sound macroeconomic fundamentals and achieving its fiscal targets by continuing the course of sound fiscal management.”

“The country’s recent structural reforms will also enable the country to withstand the pandemic shocks and map a route to recovery,” he added. — Keisha B. Ta-asan with Luisa Maria Jacinta C. Jocson

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