PBBM: Credit upgrade breaks poverty cycle

PBBM: Credit upgrade breaks poverty cycle | Daily Tribune

An improvement in the country’s credit rating is equivalent to an upgrade in the lives of ordinary Filipinos, President Ferdinand R. Marcos Jr. touted on Saturday.

He said the robust growth momentum would benefit more Filipinos as the government aims to break the cycle of poverty.

Japan-based Rating and Investment Information Inc. (R&I) announced it has raised the investment-grade rating of the country to “A-” due to its strong economic performance.

Marcos said the country’s highest rating to date “manifests high investor confidence” in the economy by foreign businesses.

He noted that the latest upgrade would cut borrowing costs and secure cheap and affordable financing for the government, businesses and consumers.

“Instead of paying interest, the government could spend on public services like infrastructure, healthcare facilities, and the construction of school buildings for young Filipinos,” he said of the benefit to the country.

Marcos recognized that this was the first credit rating upgrade during his administration, thus he vowed to continue improving the country’s economic performance under his leadership.

“We will keep giving our best to make sure that every Filipino benefits from economic growth until we break the cycle of poverty,” he said.

The R&I cited macroeconomic stability and high economic growth as the basis for the rating upgrade to A-, one notch up from the country’s rating of “BBB+” in August last year.

The Philippines was also upgraded to a “stable” outlook from the previous “positive” grade.

Experts tip growth at 6% to 7%

The growth momentum for the year could settle within the government target of 6 to 7 percent due to lower interest and better employment rates, financial market analysts and economists said.

“The labor market remains firm with employment exceeding what the demographic trend would suggest. Consumption momentum has waned due to high interest rates and inflation but we don’t expect the economy to slow down,” said HSBC economist Aris Dacanay.

These statements came after the Philippine Statistics Authority (PSA) reported inflation last month rose to 4.4 percent from 3.7 percent in June.

The PSA added that economic growth in terms of gross domestic product (GDP) in the second quarter improved to 6.3 percent from 5.8 percent in the previous quarter.

2M in the underground economy

Dacanay said the country likely has fewer unemployed Filipinos as many of them work in the informal sector “to earn a bit of extra income for the household.” He said such workers could number over two million.

Jobless Filipinos in June decreased to 1.62 million from 2.11 million in May based on PSA data.

Meanwhile, the youth employment rate was better at 91.4 percent from 88.8 percent. Most Filipinos found jobs in the services sector with 58.7 percent of the total labor force.

Dacanay said consumption, which accounts for about 70 percent of gross domestic product, will likely grow as the Bangko Sentral ng Pilipinas projects another 25-basis point cut for loan rates in the last quarter of the year.

“A lower interest rate is a bonus as I expect continued government spending and improved inflation rates to support consumption and private investments,” according to Jonathan Ravelas, senior adviser at Reyes Tacandong & Co.

Government projects are also being stepped up based on fiscal indicators.

PSA data indicated public spending grew much faster at 10.7 percent compared to household consumption’s 4.6 percent in the second quarter. This prompted the central bank to lower its policy rate to 6.25 percent from 6.5 percent on Thursday.

Among the numerous projects under the Marcos administration, Ravelas said, government spending will focus on infrastructure for tourism as an economic growth booster.

Increased borrowings should not be a worry.

“Forget about the debt-to-GDP ratio of 60 percent. The last time it was 80 percent was during the Asian financial crisis in the 1990s, so we can hack it,” he said.

Thus, Dacanay said, the country will be importing more construction materials and equipment to support the infrastructure program, resulting in 2-percent levels of current accounts deficit between import expenses and export income until next year.