US economist Roubini sees PH investment grade this year

by Kathleen A. Martin,

Posted at Jan 30 2013 04:00 PM | Updated as of Jan 31 2013 05:17 PM

Nouriel Roubini, chairman of Roubini Global Economics and an economics professor at New York University's Stern School of Business speaks at a Thomson Reuters Newsmaker event in New York January 14, 2013.  Photo by Keith Bedford, Reuters

MANILA, Philippines (3rd UPDATE) - The country may very well get its coveted investment grade rating from credit rating agencies in the next few months, renowned economist Nouriel Roubini said on Wednesday.

"I have come to the conclusion that the rating to investment grade is certainly warranted and decision should be formally taken this year," Roubini said during the Philippine Investment Summit 2013 in Makati City.

"I hope that rating agencies will understand that sooner rather than later... and an upgrade will occur in the next few months," he continued.

Getting an investment grade from credit rating agencies encourage more investments to the country, and in turn, supports economic growth.

Roubini praised the country for having achieved "remarkable success" in the last few years, owing this to an increase in private investments and stronger political institutions.

The Philippines is rated one notch below investment grade by Standard & Poor's and Fitch Ratings.

S&P rates the country a BB+ with a positive outlook, while Fitch grades it BB+ with a stable outlook.

Moody's Investors Service, meanwhile, rates the country Ba1, also a notch below investment grade, with a positive outlook.

The Philippines may have been constrained by high public debt, not-enough government revenues and a "seriously low" per capita GDP in achieving investment grade, Roubini said.

But the declining public debt and improving revenues due to additional policies despite still low per capita GDP may allow the country's credit rating to be upgraded, he noted. 

The economist, dubbed as Doctor Doom as he predicted the 2008 US recession, stressed the country may very well have breached its 5% to 6% gross domestic product (GDP) target last year, and may potentially reach 7% this year.

"Potential growth of the country could be 7% certainly if that demographic dividend is exploited rightly," Roubini said.

Seven percent is the higher end of the government's 2013 GDP target.

Roubini stressed the Philippines' young population is a significant driver of the economy so investments should be made in the education sector.

This is because despite having a large labor force that can provide a boost to the economy, they have to be equipped with the right skills and education.

The economist has also noted the increase in investments to the country, despite being a laggard among the region with regard to fixed and portfolio inflows.

"Certainly, the country now has achieved an economic model of slightly less based on consumption and slightly more based on investments," Roubini pointed out.

But consumption will still remain as the country's largest economic driver, as remittances Filipinos living and working abroad continue to be robust, he said.

New reforms in the government and the new leadership have also drove the country to its recent economic success, the economist said.

"Institutions and governance matter. That has been ... a source of improvement in country. The president has been fighting corruption, improving institutions of the country," Roubini said.

Despite the country's success story, challenges that could drag economic growth remain.

These constraints to growth are the the appreciating currency that could hamper competitiveness, natural disasters, low interest rates that could lead to asset bubbles and need for more investments, Roubini noted.

Businessmen react
Erramon Aboitiz, president and CEO of Aboitiz Equity Ventures, said the country needs to increase competition in various sectors to spur more consumption to support the economy.
"Higher competition will lead to lower cost for consumers," Aboitiz, acting as a reactor to Roubini's speech, said.
Manuel V. Pangilinan, managing director and CEO of First Pacific Company Ltd., meanwhile noted the need for more power investments in the country.
Pangilinan said the Philippines, especially Mindanao, needs to have more investments in the power sector to make sure businesses are supplied with needed electricity.