THE PHILIPPINE economy is on its way up, according to two investment grade ratings by Fitch Ratings on March 27 and Standard & Poor’s (S&P) on May 2. The two credit rating agencies upgraded the Philippines from a non-investment grade of BB+ to an investment grade of BBB-, indicating a rise in the economy.

This is the first time that the Philippines has received an investment grade from either of the two firms. Many are expecting Moody’s, the last major firm that has not yet awarded the country an investment grade, to follow suit.

Credit analysts look at a variety of factors when gauging a country’s credit rating, which is used by foreign creditors to judge whether or not a government or private corporation should be lent money. One important factor considered by these firms is the country’s ability to pay its debts. An investment grade reflects a suitable business environment for investors.

In contrast, a non-investment grade indicates that a country or institution may be prone to default on its debts due to particular uncertainties and adverse conditions.

“The upgrade on the Philippines reflects a strengthening external profile, moderating inflation and the government’s declining reliance on foreign currency debt,” said S&P credit analyst Agost Bernard in an official statement.

“It is further indicative of sustained confidence in the Philippine economy… [and] on the hard work and dedication of the Filipino people,” said Presidential Spokesperson Edwin Lacierda in a statement released on the day the second investment grade was awarded.

Fiscal and political reforms

Neil Adrian Cabiles, an assistant professor at the Ateneo Department of Economics, attributes the upgrade to a combination of fiscal and political reforms implemented throughout the span of two presidential administrations.

Cabiles explained that investment grade ratings are not granted easily. He said that it usually takes seven years for firms to award such upgrades. He credited not just President Benigno S. Aquino III’s administration, but also that of former president Gloria Macapagal-Arroyo.

“The healthy finances of the government was already happening [in] 2005. If we are to be very clear about it, the drive to create healthy finances happened in the past [administration],” he said. “Both had a part.”

For the present administration’s part, Cabiles cited the renewed focus in fighting corruption and the Bureau of Internal Revenue’s intensified efforts in increasing tax collection and apprehending tax evaders. According to him, these gave the firms a “strong signal” that the Philippines is headed in the right direction.

In its own statement announcing the upgrade, Fitch acknowledged that “improvements in fiscal management begun under President Arroyo have made general government debt dynamics more resilient to shocks.” However, for the rating to be maintained, the agency assumes that the present administration “will persist with its fiscal, governance and social reform agenda.”

“More of an award”

Cabiles stressed that an investment grade is “more of an award” certifying a country’s ability to pay its debts. He stressed that investments, specifically foreign direct investments, would not spike up immediately as a result of the upgrade.

The investment grade also means that the country will now have an easier time borrowing money from creditor countries and institutions. As an example, Cabiles said that if the government wants to create new infrastructure, it will be easier to get funding for it.

The same goes for private Filipino companies. In their case, the borrowed money can be used to grow their businesses. “Those businesses [can] tap and take advantage of this investment grade. They have the capability. [They can] expand their businesses and hire more people,” Cabiles suggested.

Rafael Rubio, president of the Ateneo Economics Association, agrees. “A better grade thus tells us that [both the government and corporations] are less likely to default on their bonds. It tells interested corporations or entities that we are reliable, such that their investments will go back to them,” Rubio said in an e-mail interview with The GUIDON.

Difference between growth and development

But questions still linger as to how an investment grade will truly benefit the ordinary Juan. Cabiles warned that the upgrade might only affect those in the upper class. “It still boils down to the issue of income disparities. There is an investment grade rating, but to whom does the investment grade rating improve? […] Are the people in your economy really improving in their standard of living?”

Luke Anthony Santos, a management economics sophomore, is glad about the recent upgrade, but at the same time, he is partly disappointed with how it was clinched.

One example he gave was the economy’s reliance on Overseas Filipino Workers’ (OFW) remittances. “Our main credit backing… relies on a lot of OFW remittances, which is good, but not a sure guarantee [of our ability to pay our debts],” Santos said.

He was concerned that economic and political instability in various parts of the world may negatively affect OFW remittances and, subsequently, the country’s economic growth.

Both Fitch and S&P acknowledged that remittances were a factor in the upgrade. Consumer-driven consumption and a “substantial foreign exchange buffer” brought about by these remittances have contributed to the Philippines’ avoidance of recession during the recent global financial crisis.

Some people also believe that some of the government’s current economic policies may not be truly beneficial for the poor. Santos cited the uproar over the Aurora-Pacific Economic Zone and Freeport Authority (Apeco) and the controversial Sin Tax Law as examples. Labor issues, such as contractualization, security of tenure and outsourcing also continue to exist.

“You have to remember that economic growth is one thing, but economic development is another. You might be able to grow [the economy], but will the distribution [of benefits] be equitable?” Cabiles said.