By Ben O. de Vera, June 11, 2020; Philippine Daily Inquirer

The Philippines’ credit rating has reached the coveted “A” grade level for the first time after Japan Credit Rating Agency Ltd. (JCR) on Thursday (June 11) announced an upgrade in the country’s sovereign rating to “A-“ with a “stable” outlook.

The new credit rating was one notch higher than “BBB+” previously, while the outlook meant JCR will likely keep the rating in the near term.

While JCR—Japan’s top debt watcher—may be smaller than the top three credit rating agencies Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings, its upgrade came at a time when the Philippines was in a recession as a result of economy-killing measures needed to stop the transmission of coronavirus.

“The ratings mainly reflect the country’s high and sustainable economic growth performance underpinned by solid domestic demand,” JCR said.

It also showed Philippine “resilience to external shocks supported by an external debt kept low relative to GDP [gross domestic product] and the accumulation of foreign exchange reserves, the government’s solid fiscal position, and a highly sound banking sector,” the rating agency said.

Currently, Philippine economic growth is “under downward pressure on the back of the impact of temporary reduction of economic activity due to the implementation of quarantine measures to contain the spread of COVID-19,” JCR said.

The downturn, however, would be limited “given the country’s strengthened economic base, resilient external position and the government’s economic stimulus package totalling more than 9 percent of GDP,” JCR said.

“Fiscal soundness will not be impaired because the fiscal deficit may widen, the package at this time is justifiable and the government debt will remain comparatively subdued,” it said.

JCR added that the Duterte administration’s infrastructure building binge and sharp tax reforms “have been steadily progressing” since JCR’s last review.

“The government is firmly committed to its infrastructure development policy as a means to promote economic recovery and increase growth potential while adjusting the scale of its budget spending,” JCR said.

It noted the decisiveness to push ahead with package two of tax reforms which included a corporate tax cut which is viewed as crucial in supporting businesses hit badly by the pandemic.

JCR also noted efforts to give rational to fiscal incentives “to attract desirable investments.”

“These indicate that the government by and large keeps the momentum for reforms,” JCR said.

“Based on the above, JCR has upgraded the ratings to ‘A-‘ with a stable outlook,” it said.

Reacting to JCR’s upgrade, Finance Secretary Carlos G. Dominguez said: “It’s the result of the President’s strong leadership and the teamwork of the Cabinet, the Bangko Sentral ng Pilipinas (BSP), and the legislators.”

In a statement, the government’s Investor Relations Office (IRO) quoted BSP Governor Benjamin E. Diokno as saying that JCR’s latest rating decision was “encouraging news at this challenging time.”

“The agency’s decision reflects its confidence that the Philippines is pursuing appropriate policies that will help Filipino individuals, businesses, and the economy at large to recover from this unprecedented crisis,” Diokno said.

“On the part of the BSP, we have already implemented a long list of extraordinary relief measures, and we stand ready to do more if needed,” Diokno said.

The BSP chief said though the government attention has been temporarily diverted from its agenda of achieving an “A” credit rating to “saving lives, jobs and livelihoods,” the positive assessment of international bodies, like JCR, was welcome.

“We hope this helps to uplift the Filipino spirit at this trying time and to inspire us to work harder together to emerge stronger after the pandemic,” the BSP chief added.

The government had wanted to achieve “A” credit ratings from the top three debt watchers to offset the higher debt costs in case the Philippines becomes an upper middle-income country this year and loses preferential rates it currently enjoys when borrowing from its bilateral development partners and multilateral lenders.

However, the COVID-19 pandemic set back by at least two years the Philippine target to achieve upper middle income status, according to World Bank analysis. Recession has set in and unemployment and poverty were expected to worsen.

Credit ratings are a measure of a government’s creditworthiness. As the stability of state finances was also related to a country’s performance, credit scores serve as a proxy grade for the economy.

Improved ratings would allow the government to demand lower rates when it borrows from lenders, which could translate to lower interest rates for consumers and businesses borrowing from banks using government-issued debt paper as benchmarks for their loans.

The Philippines currently enjoys investment-grade credit ratings.