PH credit rating seen safe despite high debt


Credit rating agencies expect the level of the Philippines’ debt that they have been watching to be manageable and decline alongside economic recovery.

This boosts the likelihood that the Philippines will keep its investment-grade credit ratings and therefore borrowing cheap during the Marcos Jr. administration.

The latest Department of Finance (DOF) data showed that the Philippines’ general government (GG) debt as a share to gross domestic product (GDP) rose to 53.5 percent of GDP in 2021, the highest since data started getting collected in 2013.

GG debt is composed of combined obligations of the national government, local governments and social security institutions, less their bond holdings.

Debt watchers closely monitor GG debt levels for their credit rating actions. DOF data showed that the GG debt ratio climbed from 34.1 percent of GDP in 2019 prepandemic to 48.1 percent in 2020, and then further jumped last year.

In terms of actual value, GG debt rose from P6.65 trillion in 2019 to P8.63 trillion in 2020, and increased to a record P10.37 trillion in 2021.

Despite a historic-high GG debt in terms of both value and its share to GDP, analysts at credit rating agencies Moody’s Investors Service and S&P Global Ratings weren’t worried.

“The Philippines’ debt level remains in line with its sovereign ratings, reflecting our stable outlook. We expect government debt in 2022 to steady as a share of GDP on the back of strong economic recovery as the country emerges from the pandemic-driven slowdown,” S&P analyst YeeFarn Phua said in an email to the Inquirer. S&P had kept its “BBB+” investment-grade credit rating for the Philippines amid the prolonged COVID-19 pandemic.

Consistent with ratings

For Moody’s Investors Service, “the recently released data for the Philippines’ GG debt, estimated at 53.5 percent of GDP in 2021, remains consistent with the current ‘Baa2’ sovereign rating,” its senior vice president Christian de Guzman said in an email.

De Guzman said the Philippines’ GG debt ratio last year remained below the median of 62.5 percent of GDP among similarly rated peers, which was lower than the about 65 percent in 2020 at the onset of the COVID-19 pandemic. “However, whereas the Baa2 median debt burden peaked in 2020, we expect that the Philippines will do so in 2021,” De Guzman added.

Asked about his outlook on the Philippines’ debt levels, De Guzman replied: “We expect gradual fiscal and debt consolidation in the Philippines over the next few years, although this scenario is subject to increasing uncertainty given the prevailing global headwinds to growth that could have important spillovers for the Philippines.”

Economic recovery

“The ratings trajectory will be determined in part by the incoming administration’s ability to balance sustaining the economic recovery against its intentions to undertake significant fiscal repair,” De Guzman said.

Both President-elect Ferdinand Marcos Jr. and incoming Finance Secretary Benjamin Diokno have not been keen to the DOF’s fiscal consolidation proposal aimed at repaying pandemic-induced ballooning debts and narrowing the budget deficit to prepandemic levels. The fiscal consolidation pitch mainly consisted of higher or new taxes to be slapped on consumption, while delaying by three years personal income taxpayers’ scheduled tax cuts under the Tax Reform for Acceleration and Inclusion Act.

The next administration also wanted to sustain robust spending, especially for their priority programs and projects like infrastructure, despite the outgoing economic team suggesting some budget cuts.

Back in February, Fitch Ratings also kept the Philippines’ “BBB” rating—one-notch above minimum investment grade—as it projected GG debt would likely be below-average among its similarly rated peers in the next couple of years.

“The Philippines’ debt trajectory will depend on the balance of fiscal consolidation and ongoing government spending to support the economic recovery. We project GG debt-to-GDP to reach 54.5 percent in 2022, then decline to 53.1 percent in 2023, from an estimated 54 percent in 2021 (and 48.1 percent in 2020). This is still below our ‘BBB’ median forecast of 55.3 percent in 2022 and 56.6 percent in 2023,” Fitch had said.

Credit ratings are a measure of a government’s creditworthiness. As the stability of state finances was also related to a country’s performance, credit scores serve as a proxy grade for the economy.

Improved ratings will allow the government to demand lower rates when it borrows from lenders, which could translate to lower interest rates for consumers and businesses borrowing from banks using government-issued debt paper as benchmarks for their loans.

The Philippines’ credit rating status remained investment grade despite the prolonged pandemic, although some downgraded their outlook—or the timing of possible upgrades —to “negative” or a short-term deferral. The country currently enjoys investment-grade credit ratings from the top three debt watchers Fitch Ratings, Moody’s and S&P. INQ

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