Affirmation of Philippine rating reflects sustained recovery

MANILA, Philippines — The decision of Moody’s Investors Service to maintain the Philippines’ investment grade Baa2 rating and stable outlook reflects the sustained economic recovery amid increased external headwinds, according to economic managers.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said the affirmation of the country’s rating would support the sustained recovery of the economy.

Moody’s believes there is sufficient momentum to support real gross domestic product (GDP) growth of 6.6 percent for 2022 and 6.2 percent for 2023, with price pressures seen to moderate as commodity prices ease from peaks recorded earlier this year.

This is within the 6.5 to 7.5 percent growth target set by the Cabinet-level Development Budget Coordination Committee (DBCC) for this year, but lower than next year’s 6.5 to eight percent.

After exiting the pandemic-induced recession with a GDP expansion of 5.7 percent in 2021 from a contraction of 9.6 percent in 2020, the Philippines recorded a GDP growth of 7.8 percent in the first half despite the slowdown in the second quarter.

“The BSP continues to have the necessary monetary policy tools to address the current challenges of tighter global financial markets and volatile exchange rates and ensure our return to a target-consistent inflation path,” Medalla said.

The Monetary Board has so far raised key policy rates by 175 basis points this year, bringing the overnight reverse repurchase rate to 3.75 percent from an all-time low of two percent to curb mounting inflationary pressures and stabilize the peso that has been hitting new record lows.

The BSP chief welcomed Moody’s recognition of the country’s well-capitalized banking system, which continues to provide the funding needs of businesses and households.

An investment grade rating indicates lower credit risk, thus allowing a country to access funding from development partners and internal capital markets at lower cost to the public.

This enables a country to channel funds that would have otherwise been allotted for interest payments to socially beneficial programs and projects.

For his part,… Finance Secretary Benjamin Diokno underscored that Moody’s affirmation of the Philippines’ Baa2 rating comes amid a wave of credit rating downgrades of economies made vulnerable by the pandemic.

“Sustained implementation of reforms will further strengthen the country’s fiscal position,” Diokno said.

The DOF chief and head of the economic team also emphasized the government’s commitment to pursuing the medium-term fiscal framework and the legislative priorities of the Marcos administration’s socioeconomic agenda.