MANILA, Philippines - As expected, Philippine fiscal and monetary authorities made a pitch for a much coveted credit rating upgrade on the first day of the 45th annual meeting of the Board of Governors of the Asian Development Bank (ADB).
Finance Secretary Cesar Purisima said in a speech during a seminar titled “Credit Ratings: An Asian Perspective” said the Philippines is the most underrated country by credit rating agencies in the world.
Purisima told participants of the forum that the credit rating of the Philippines is four notches below the bond market implied rating.
The Philippines has so far received at least five upgrades from rating agencies since President Aquino assumed office in June of 2010. London-based Fitch ratings rates the country’s sovereign credit at one notch below investment grade while New York-based Moody’s Investor Service as well as Standard & Poor’s rate the country’s sovereign credit at two notches below investment grade.
“Not that I am appealing, these are some of the aberrations that need to be considered by the credit rating agencies,” the finance chief stressed.
He cited the country’s robust external payments position with the gross international reserves (GIR) hitting a new record level of over $77 billion and the declining debt to gross domestic product (GDP) ratio.
He pointed out that credit rating agencies should not depend on the per capita income alone and should look at other factors.
“Per capita is like a rocket, the higher the rocket is it better. But what if the rocket is running out of fuel,” he added.
The finance chief also boasted about the fact that the Philippines is the youngest country in Asia with an average age of 22 years old.
He said the Philippines is expected to enter its demographic “sweet spot” in 2015.
For his part, Bangko Sentral ng Pilipinas (BSP) governor Amando Tetangco Jr. said the markets have already priced in a higher credit rating for the Philippines.
“I have to say that the markets have moved faster than all three major credit rating agencies. If one were to base rating on the actual pricing then the Philippine debt has been able to manage of late,” he stressed.
Major credit rating agencies have downgraded the rating of advanced economies led by the US as well as some countries in Europe over the past four years since the global financial crisis but upgraded the ratings of emerging market economies including the Philippines.
“For the emerging market world, these upgrades represent more than a simple badge of honor. By reflecting improved credit worthiness, the higher ratings also bring with them the opportunity to achieve low financing costs and increased foreign direct investment flows,” he explained.
The BSP chief pointed out that higher credit rating would also provide new impetus for greater corporate sector investment, enhanced job creation, and higher economic growth rates.
However, he said strong inflows create new complications in terms of monetary policy and managing volatilities in capital inflows.
“From my perspective as governor of BSP, despite these possible complications, the rebalancing trend in global sovereign credit ratings dovetails with one of the key initiatives we’ve been pushing in the BSP in recent years which is the deepening of our local currency capital markets,” he said.
Present during the seminar were S&P managing director for corporate and government ratings Michael Petit and Moody’s managing director and regional head of Asia Pacific Jennifer Elliott.
Elliot said the harmonization of practices and rating principles is not necessary at this point in time.
“Not every credit rating agencies must have the same methodology. Harmonization can be useful but not necessary,” she stressed.
Petit, for his part, said concerns this year include the sovereign debt crisis in Europe, the tepid growth in the US as well as the possible economic slowdown in China.
“These could very well impact the region in terms of reducing exports and reversing capital flows. The region is also exposed to increased energy crisis so there could be hiccups along the way,” he stressed.