Philippines Gets Investment-Grade Credit Rating

HONG KONG — The Philippines was once the sick man of Asia: badly managed, corrupt and poor.

Years of efforts by the government of President Benigno S. Aquino III paid off Wednesday, when the country received, for the first time, an investment-grade credit rating from one of the world’s major ratings agencies.

The move, from Fitch Ratings, represented an important vote of confidence for the Southeast Asian island nation, which has been growing at a rapid clip for the past few years but whose per capita income is barely one-quarter that of the United States. The economy remains heavily reliant on money sent home from Filipinos working overseas, called remittances.

“This means much more than lower interest rates on our debt and more investors buying our securities,” Mr. Aquino said in a statement. “This is an institutional affirmation of our good governance agenda: Sound fiscal management and integrity-based leadership has led to a resurgent economy in the face of uncertainties in the global arena. It serves to encourage even greater interest and investments in our country.”

Fitch Ratings cited “improvements in fiscal management” begun under Mr. Aquino’s predecessor, Gloria Macapagal Arroyo, as one of the reasons for its decision to lift the Philippines’ rating from junk status, increasing it one notch, to BBB- from BB+. The rating applies to the country’s long-term debt denominated in foreign currency.

The upgrade, Fitch said, reflected a persistent current account surplus, underpinned by remittance inflows, while a “strong policy-making framework” — notably effective inflation management by the central bank — has supported the overall economy in recent years.

Investors cheered the news of the upgrade, sending the main stock market index up 2.74 percent.

The upgrade had been widely expected for some time, helping turn the Philippines into something of an investment darling last year. The Philippine stock market soared more than 30 percent in 2012, one of the best performances in the world, and has risen an additional 17.8 percent so far this year — the third best in Asia after Japan and Vietnam. The Philippine peso has climbed 7 percent against the dollar since the start of 2012.

Foreign direct investment, likewise, rose 8 percent last year to $2 billion, from $1.9 billion in 2011, as investor confidence in the country has solidified since Mr. Aquino took office nearly three years ago.

“This is an upgrade that’s overdue,” said Norio Usui, country economist for the Philippines at the Asian Development Bank, which is based in Manila. “Financial markets have already fully incorporated it. Bold governance reforms under the current administration have changed consumers’ and investors’ sentiment. Prudent macroeconomic management has laid the foundation for the strong growth. This rating will give investors the confidence they need to give the Philippines a much closer look.”

The country’s promising demographics also seem to point toward bright economic prospects. While many Asian nations, including Japan, South Korea and China, are aging rapidly, the Philippine population of 94 million is one of the youngest in the region. About one-third of Filipinos are 14 or younger, according to World Bank data. That compares with 19 percent in China and 13 percent in Japan.

“Should the government implement policy to educate and provide jobs for the burgeoning population, the Philippines could capitalize on its demographic advantages to raise economic output,” economists at HSBC wrote in a research report.

HSBC forecasts that the Philippine economy will expand 5.9 percent this year, slightly less than the 6.6 percent recorded in 2012 but well ahead of the 3.9 percent in 2011. Fitch Ratings on Wednesday estimated growth between 5 percent and 5.5 percent in coming years.

At the same time, the country faces considerable challenges. Infrastructure in much of the country remains poor and corruption widespread, despite progress under Mr. Aquino’s administration. Growth has generated pockets of urban prosperity surrounded by vast areas of grinding poverty and few jobs.

Article source: http://www.nytimes.com/2013/03/28/business/global/philippines-gets-investment-grade-credit-rating.html?partner=rss&emc=rss