Japan credit watchdog Rating and Investment Information Inc. (R&I) upgraded the Philippines’ credit rating to A- with stable outlook, which reflects robust investor confidence in the country’s high economic growth, strong fiscal position, and promising outlook.

Finance Secretary Ralph G. Recto described the improved grade as a milestone achievement.

“This is the first upgrade under President Ferdinand R. Marcos Jr. that proves a wellspring of confidence from investors and creditors on his economic management,” the Department of Finance chief said.

“Our refined Medium-Term Fiscal Program is our blueprint for our road to A rating. This ensures that we can reduce our deficit and debt gradually in a realistic manner, while creating more jobs, increasing our people’s incomes, growing the economy further, and decreasing poverty in the process. Sticking to this program can help us get there faster,” he stressed.

R&I cited the Philippines’ macroeconomic stability, high economic growth path, and continuous improvement in fiscal balance as key factors for the rating upgrade.

In particular, the R&I recognized that the Philippine government has been pursuing fiscal consolidation efforts while also emphasizing support to economic growth.

“The government has higher budget allocation for education and, social welfare, on top of infrastructure investment, while pushing ahead with the measures aimed at expanding tax base,” the R&I said. 

Declining debt ratio

The Japanese debt-watcher believes that the country’s fiscal deficit and national debt as a share of GDP will continue to decline from its peak during the pandemic, emphasizing that its debt remains affordable given manageable burden of interest payment.

The R&I also highlighted that the Philippine economy has been exhibiting fast growth among the major economies in Southeast Asia.

It projects economic growth to remain strong and stable over the medium and long term on the back of robust public and private sector investments, development of domestic business sectors such as business process outsourcing (BPO), and favorable demographics, among other elements.

The agency acknowledged the Marcos Jr. administration’s strong push for reforms and programs to secure economic stability, accelerate infrastructure development, expand private investments, and create employment with the end goal of improving household income and accelerating poverty reduction.

“Given that the government has been pushing ahead with measures to ease regulations to boost private investments, R&I has a high opinion of the firm progress the government has made in further building the fundamentals toward economic growth in the medium to long term,” the report said. 

The government has maintained regular dialogue with the R&I and other major credit rating agencies. The economic team recently met with R&I on 20 June 2024 in Tokyo, Japan to provide a comprehensive briefing on the Philippine economy.

Borrowing costs slide

The upgrade sends a strong signal of confidence to investors and creditors, resulting in cheaper and more cost-effective borrowing costs for the government and the private sector. 

This allows the government to channel funds that would have otherwise been allotted for interest payments towards more development programs such as more infrastructure projects, improved social services, better health care system and quality education.

It is also expected to leverage the entry of more foreign investments, which will create better employment opportunities for Filipinos.

The recent upgrade has allowed the Philippines to already achieve two A- ratings, the first of which was given by Japan Credit Rating Agency in 2020. The country has successfully maintained its high investment-grade status across all major regional and international debt rating agencies.