Philippines tipped to become the next investment-grade sovereign

Matthew Turner
Published on:

Buoyant domestic demand and PPP implementation spur on investment growth.

The Philippines, with a global rank of 69 and an overall ECR score of 49.3, sits one place away from ECR’s tier three and is set to become the next investment-grade sovereign, according to ECR analysts.

Market analysts have widely tipped the Philippines for an investment grade this year, due to buoyant domestic demand. The implementation of public-private partnerships (PPPs) has also spurred on investment growth and helped to improve the government’s fiscal flexibility.

ECR recently examined the position of the Philippines in relation to other investment-grade sovereigns, which points to a long-overdue upgrade (In search of a new investment grade). The article states: “The sovereign is placed above six investment-grade borrowers – all in blue – at the top of the fourth of ECR’s five tiered groups. If there is to be a new investment grade, the Philippines is a prime candidate – its long-term trend improvement suggests it will soon rise into tier three.

“The country scores well for capital non-payment/repatriation risk, and country-risk experts are less concerned by its other economic indicators, including the economic-GNP outlook and monetary policy/currency stability.”

Only Hungary, with a 0.2 point advantage now blocks the Philippines from entering ECR’s prized investment-grade category. However, as ECR recently unveiled last month, Hungary’s economic and political risks mean the sovereign is likely to exchange places with the Philippines, assuming the Philippines can sustain its growth momentum.

With an economic assessment score of 57.17, the Philippines boasts a higher economic risk assessment than more than half the sovereign’s ranked inside ECR’s tier-three category, but politically and structurally the sovereign lags behind the investment pool.

The country’s economic assessment was bolstered by impressive growth rates in previous years. The Philippines’ economy grew by 6.6% in 2012 – the largest in southeast Asia, and higher than the 5% to 6% growth target the government had previously set.

Accounting for the country’s robust growth environment and the impact this has had on the country’s credit rating, Jeff Ng, economist at Standard Chartered in Singapore, says: “While optimist has been high, there have been concerns that this kind of growth momentum is temporary. There was scepticism that growth would not be sustained going forward, which caused a delay in a positive credit-rating action.

“However, we remain confident that the economy will be supported by high domestic consumption, which contributed to more than 4% of overall growth.

“Meanwhile, private investment growth is set to increase. Last year, PPPs were slow to take off due to stringent planning criteria in examining these projects for implementation. But in January, there were more PPPs implemented and approved – PPPs are growing, which is good news for driving investment growth in the coming years.”

This article was originally published by Euromoney Country Risk. To find out more: register for a free trial at Euromoney Country Risk