Risks downgrade if recent gains are reversed

MANILA - Standard & Poor's (S&P) said on Wednesday a credit rating upgrade for the Philippines was "unlikely" over the next two years as President Rodrigo Duterte's bloody war on drugs and tough rhetoric "diminished somewhat" the predictability of economic policy-making.

The country, which only recently began to shake off its reputation as the "Sick Man" of Asia, risks a downgrade "if there is a reversal of the recent gains," the international debt-watcher said in a statement.

The country's score could be raised if fiscal reforms lead to more investments and improved prospects for economic growth, it said.

Standard & Poor's affirmed on Wednesday its "BBB" long-term and "A-2" short-term ratings on the Philippines. The investment grade scores give economic managers access to a wider market for its debt offerings.

"A higher rating is unlikely over our two-year ratings horizon," according to the S&P statement.

"The predictability of policy-making in the Republic of the Philippines has diminished somewhat under the new presidency, in our view. The country remains a lower middle-income sovereign," it said.

S&P added its voice to international concern over rising number of drug suspects killed under President Rodrigo Duterte's relentless campaign.

"We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to
the legitimacy of the judiciary, media, and other democratic institutions," it said.

"When combined with the president's policy pronouncements elsewhere on foreign policy and national security, we believe that the stability and predictability of policy-making has diminished somewhat," it said.

A strong external position supported by rising foreign reserves and declining external debt offset "rising uncertainties surrounding the stability, predictability, and accountability" of the government, it said.

Duterte has repeatedly rejected criticism from the United States and the United Nations on extra-judicial killings in his war on drugs.

On Tuesday, he lashed out at the European Union after its parliament chastised him for his anti-crime campaign.

The Philippines is one of the fastest-growing economies in Asia. Gross domestic product expanded by 7 percent in the second quarter, giving the Duterte administration a strong start to its six-year term.