In a report in the “Economy Section” of BusinessMirror last September 26, 2012 entitled “Philippine seen getting investment grade next year” regional banking giant Development Bank of Singapore (DBS) had backed the country to finally received its coveted investment grade status.
The country is currently experiencing booming economy and excess liquidity as supported by the benign inflation, stronger than expected economic data and strong appetite for the government securities as evidence by the drop in the yields of the said investment products. For the first half of the year the Philippine economy had expanded by an average of 6.1%, third fastest among the Asian countries behind China and Indonesia. With the improved economic fundamentals such as better debt management as reflected by the improved debt to GDP ratio of 50.9% from a high of 74.4% in 2004, the country is now being cited as one of the next Asia’s tiger economy. As the economic profile of the country improves, the economic managers of the current administration and even the local and foreign bankers are now gunning in and knocking on credit rating agencies to revisit the credit standing of the Philippines and to possibly consider the possibility of granting the country an investment grade status. The Philippine economy is currently sitting on a one notch below investment grade credit rating from two agencies namely Standard & Poors and Fitch while Moody’s gave the country two notch below investment grade but with a positive outlook. According to the economists and market traders and this can be reflected by the market, the country is currently perceived as an investment grade country in the debt markets as its yields are at historically low.
What does an investment grade credit rating means to a country like the Philippines? Many of the investment funds such as foreign mutual funds, private equity groups and many others are restricted to place their investments in a country wherein it is being rated as a sub-investment grade. Being granted an investment grade status is like having a pandora’s box but with a positive consequence. Another benefit of being an investment grade is having to tap the debt market at a low cost. As investors do perceive the issuing party as having a remote chance of defaulting from its obligations.
Investment grade alone will not solve the economic woes of the country, the government must continually improve its competitiveness in terms of its economic profile by making its economic policies more predictable and feasible for investors. Lots of things are needed to be done, in order to sustain that status and eventually making the Filipino feel the benefits of an improved economy.