Credit rating upgrade and all that fuzzBy Randell Tiongson on July 6th, 2012
Standard and Poor’s or S&P has recently upgraded the credit rating of the Philippines. With the upgrade, we are only one notch below being “investment grade”.
I can still remember the time when the Philippines were downgraded a few years ago and things weren’t looking well at those times. Philippine debt (Bonds) went down, interest rates went up which made cost of borrowings much higher and it seems that the international market was ignoring the Philippines as a viable place to invest. The downgrading was a bitter pill to swallow back then but it was necessary for the country to ‘bite to bullet’.
But who is Standard and Poor’s anyway? According to Investopedia.com, S&P is “the world’s leading index provider and the foremost source of independent credit ratings. Standard & Poor’s has been providing financial market intelligence to decision-makers for more than 150 years.” S&P is the most recognized credit rating agency in the world and many institutions rely on what this credit rating agency say about many things, credit worthiness of a country being one of them. The other credit rating agency that has a big impact is Moody’s as they are also one of the most popular credit rating agencies with respect to fixed-income securities. Our Philippine sovereign debts are categorized as fixed-income investment instruments.
If the impact of a downgrade is negative, then the reverse can be said with an upgrade obviously. The news of an upgrade was expected with Moody’s making the first move, upgrading the Philippines earlier than S&P. The Philippines and its government had made strides in fixing our fundamental issues, both in the monetary & fiscal management areas – despite how many critics play it down. The national debt vs. GDP has achieved milestones although we are far from being ideal; our Gross International Reserves (GIR) has been on all time highs, the BSP has maintained its fierce independence (what the International investors like); and I believe the country’s fight to fix graft and corruption played a big role with the upgrades. President Aquino and his government may be getting a lot of criticism for many things but they should be praised for what they are doing in this arena and international perception is vital to our survival and growth.
The Philippines has been able to slowly shake its image as the sick man of Asia and not considered as one of those countries that will do well in the next few years. We are now bundled with countries like Indonesia and Turkey as the countries with good economic future.
The upgrade is a big welcome as it means we are on the right path. If we continue to do the good things we are doing – wise monetary & fiscal management, fight against irregularities, proper spending, further lowering of national debt, among many things, then a future upgrade is very likely. Our new credit rating is BB+, one more notch and we will we will be BBB- the entry level to be considered as ‘investment grade’ – and that’s when the fun really starts. When we do reach ‘investment grade’ status, our capital markets will uhm… what’s a right word, hmmm… yeah – BOOM! Many institutional funds like retirement funds and other funds in Europe and the U.S. will enter our markets as many of these require investments in ‘investment grade’ markets. Our stock market will go beyond a rally, it will see unbelievable highs! Our foreign borrowings will cost cheaper as our bonds will not have to have higher interest rates just to compete. A robust capital market will eventually result to a better economy, more activities, more business and more employment. We may eventually see a reversal in the sending of the biggest Filipino exports – our OFWS as there may be more jobs locally for them.
I am really excited for these times! From my end, I continue to espouse financial education as we prepared for the imminent growth; if we don’t manage our wealth well, all these things are for naught. We should be able to profit personally from all the economic growth that is to come, and we can if we chose too.
One last thing, I believe all these things are happening because the Philippines is slowly returning to the Lord. I’m going to get flak for saying this but I’ll say it anyway – the greatest accomplishment of P-Noy is that he is a God-fearing President and the Lord is blessing us for that. We need to continue to pray for our leaders, from the President to the Senators, Congressmen, Governors, Mayors, Counsellors, Judges, Policemen, Barangay Officials, MMDA – everyone who serves this country. The best thing we can do for this nation is to pray, pray, pray … and really live the ideals of a life Jesus left for us to follow. When God is the Lord of a nation, that nation will not just be prosperous, it is blessed.
“Blessed is the nation whose God is the LORD, the people he chose for his inheritance.” – Psalm 33:12, NIV