The Philippines won a rating upgrade from Moody’s Investors Service, completing the nation’s ascent to investment rank as President Benigno Aquino leads a growth resurgence that’s outpacing the rest of Southeast Asia.
The rating on Philippine government debt was raised one level to Baa3, Moody’s said in a statement today, citing “robust economic performance,” ongoing fiscal and debt consolidation, political stability and improved governance. The outlook on the rating is positive. Stocks and the peso rose.
Aquino, who won control of the Philippine Congress in May elections, has pledged to accelerate reforms needed to ensure the nation’s economic revival is sustained. His efforts won investment-grade credit scores from Standard & Poor’s and Fitch Ratings earlier this year, while the country’s expansion of 7.5 percent in the second quarter matched China’s pace.
“The upgrade was expected; what is a bit surprising here is the positive outlook, making them more bullish than other rating agencies,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “It’s a big plus for Aquino, reflecting the success of fiscal reforms and growth sustainability. There’s a distinct possibility of another upgrade before he steps down in 2016.”
The peso climbed to a two-week high, extending gains to 0.6 percent to 43.125 against the dollar as of the noon break in Manila. The Philippine Stock Exchange Index climbed 0.5 percent, reversing an earlier loss.
The $250 billion Philippine economy, which was more than twice the size of Malaysia and 10 times bigger than Singapore’s in 1960, was termed “the sick man of Asia” as it lagged behind its peers in following decades. Now, the World Bank forecasts growth will exceed 6 percent every year until 2015.
Expansion held above 7 percent for a fourth quarter in the three months through June, defying a regional slowdown as the nation remained one of Asia’s best performers. The Asian Development Bank yesterday raising its growth forecast for the Philippines for this year to 7 percent and to 6.1 percent next year, even as it cut its predictions for developing Asia.
Aquino, named by Time magazine as one of the world’s 100 most influential people this year, has raised tobacco and liquor taxes to narrow the budget deficit, ousted the top judge for illegally concealing his wealth, and pledged to seek more than $17 billion in infrastructure investments.
“The Philippines’ economic performance has entered a structural shift to higher growth, accompanied by low inflation,” Moody’s said today. “The new growth path is being reinforced in part by improved fiscal management.” The move puts the Philippines on par with Turkey and Spain.
Fitch was the first to upgrade the Philippines in March, with S&P following in May. In contrast, Fitch cut Malaysia’s credit outlook July 30 to negative from stable, while S&P lowered Indonesia’s outlook to stable from positive in May. Moody’s today lowered its outlook on Brazil to stable from positive, citing deteriorating debt and investment ratios and evidence the economy is going through a low-growth period.
Global bond yields showed investors ignored 56 percent of Moody’s and 50 percent of rival S&P’s rating and outlook changes last year, more often than not disagreeing when the companies said governments were becoming safer or more risky, data compiled by Bloomberg show.
Bangko Sentral ng Pilipinas kept the benchmark interest rate at 3.5 percent for a seventh meeting in September after inflation eased to a four-year low in August. The nation will withstand pressure stemming from the impending reduction of the Federal Reserve’s stimulus, with growth exceeding 7 percent this year, Governor Amando Tetangco said in an interview yesterday.
The World Economic Forum ranks the Philippines 59th in its 2013-2014 Global Competitiveness Index, up from 65 the previous year. Fujifilm Corp., a maker of cameras and medical equipment, and Sonion A/S, which makes high-end microphones and components for audio headsets and hearing aids, are among companies that began production at new factories in the Philippines this year.
Aquino plans to boost infrastructure spending to a record next year, and add jobs to reduce poverty levels that are unchanged since before he took office in 2010. The nation’s unemployment rate is among the highest in the region.
“Now it is time for the president to sink his teeth into substantial reforms,” said Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc. “Raising public investment, loosening of foreign direct investment restrictions and improving the business environment are all required reforms.”