PHL ratings upgrade ‘warranted’

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Category: Top News

Published on Wednesday, 30 January 2013 20:52

Written by Miguel R. Camus | Reporter

The Philippines could clinch a coveted investment-grade status this year or as early as within the next few months on the back of improvements in fiscal policy, stable growth and continued government reforms, visiting economist Nouriel Roubini told a business forum on Wednesday.

Roubini, chairman and co-founder of Roubini Global Economics, said the economic outlook for the Philippines remains “robust” in 2013, following a likely 6.5-percent expansion in gross domestic product (GDP) last year. Consumer spending will continue to drive economic expansion and could be bolstered by increased infrastructure investments, he added.  

Roubini also cited the Philippines’s fiscal policy, which he called its “success story,” with a budget deficit running at 2 percent of GDP and falling, reduced public debt and a strong reserve position accumulated by the central bank.  

Given benign inflation, the Bangko Sentral ng Pilipinas has been keeping policy rates on hold at the current
record lows, helping sustain spending and investments.

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“All this leads to the conclusion that a ratings upgrade is certainly warranted and a formal decision [will be] undertaken this year,” Roubini said before business leaders and economic managers at the Philippine Investment Summit 2013 organized by First Metro Investment Corp.

Much of Roubini’s talk focused on the positive aspects of the country, but he also brought up the perennial issue of weak investment growth, especially when compared to its regional peers.

As such, a consumer-based economy that served the Philippines very well in the past may need to be revamped if the country intends to sustain and achieve higher growth, he said.

“Certainly the country should now shift to an economic model that is slightly less based on consumption and slightly more based on investments,” Roubini added.

Many of these factors have been cited by top ratings agencies but none has moved to upgrade the Philippines, which is currently ranked just one notch below investment-grade status.

Roubini said the decision is still likely under discussion, as the agencies look deeper into the Philippines’s debt and revenue ratios.

His talk on Wednesday also highlighted potential risks to economic expansion.  

He noted that the Philippine peso’s strength remained a concern given its effect on fast-growing industries such as business-process outsourcing and the more traditional export-oriented businesses.  

Roubini also cited the “massive amount of liquidity” brought about by inflows and the potential volatility this may bring in terms of excess gains in asset prices. Some of these gains can be seen in the Philippines’s real-estate sector, described as among the booming industries today, but Roubini said that price increases are not yet approaching the level seen in the US just before the recent financial meltdown.

Other factors that could aid the Philippines is for the government to improve efforts to combat corruption, reduce the costs of doing business in the country and providing better financing access to small and medium-sized businesses, Roubini said.

Roubini noted that “liberalizing” the level of foreign investments should also be a key initiative. The Philippine Constitution puts caps on certain industries that foreign money can enter, but he said “there are legal ways to increase” such investments even within the confines of the law.