Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the incoming administration will pursue a fiscal consolidation plan to help the country achieve the elusive “A” investment grade score from global credit rating agencies.
Diokno told an investor roundtable discussion in Madrid, Spain the Philippines was on its way to the “A” level credit rating before the global pandemic hit in 2020. He said the Philippine economy remained strong and that the Duterte administration carried on its game-changing reforms.
“Not surprisingly, all the international and regional rating agencies unanimously affirmed the Philippines’ investment-grade ratings throughout the pandemic despite a wave of ratings downgrades for many advanced and emerging economies,” he said.
“Now, the next administration has to continue the country’s pursuit of A-level rating. This can be done by crafting, among others, a well-thought-out fiscal consolidation framework, which has been prepared by the Executive Department and ratified by Congress,” Diokno said.
Debt watchers earlier cited the country’s strong fundamentals, adequate buffers against shocks and sound macroeconomic management as the reasons why they decided to affirm the country’s investment grade ratings.
Moody’s Investors Service affirmed the Philippines’ “Baa2” investment grade rating with a stable outlook in July 2020. It was followed by S&P Global Ratings’ affirmation of its “BBB” rating with a stable outlook in May 2021.
Japan Credit Rating Agency affirmed its “A” rating with a stable outlook for the Philippines in September 2021. In February 2022, Fitch Ratings affirmed its “BBB” rating with a negative outlook for the country.
Outgoing Finance Secretary Carlos Dominguez III earlier warned that any inaction by the next administration on the fiscal consolidation plan prepared by the Department of Finance, which aims to reverse the P3.2-trillion COVID-related debt and recover from the economic crisis, would lead to serious consequences.
Dominguez said the plan would be “critical” to help the government continue its productive spending, grow out of its pandemic-induced debt, and provide substantial buffers to respond to lingering and future economic shocks.
The series of measures aims to reverse in a span of 10 years the additional P3.2-trillion debt incurred by the government amid the COVID-19 pandemic.
The country’s outstanding debt hit a record P12.68 trillion in March on government borrowings to finance infrastructure projects and COVID-19 response efforts, latest data from the Bureau of the Treasury show.
Meanwhile, private sector economists remain bullish on the growth outlook in the second quarter, saying the number of jobs created in the previous months that contributed to the first-quarter GDP growth of 8.3 percent would sustain economic expansion in the coming months.
Economists of the First Metro Investment Corp. and the University of Asia and the Pacific said in a joint report the Philippine economy’s impressive 8.3-percent first-quarter GDP growth brought the economy to pre-pandemic levels.
They said a good part of the gains might be attributed to pre-election spending, but it would likely spill over into the second quarter, as the present administration still has much cash to spare.
“As pointed out before, the growth pace may not continue in the second half, based on historical precedents and the tighter fiscal space that the new administration will face,” the economists said in the Market Call report.
“However, the huge number of jobs created in the fourth quarter of 2021 to the first quarter of 2022 [3.4 million] constitute the major contributor to Q1 GDP growth,” the report said.
“With the record number of employed persons [at 46.5 million] as well as the labor force participation rate [65.4 percent], leading to an unemployment rate of 5.8 percent, the lowest in the post pandemic period, the positive impact will likely carry on until Q2,” it said.