Moody’s Investors Service said on Tuesday that the Philippine government’s sovereign rating of Baa2 is supported by improvements in government finances alongside ongoing debt reduction in addition to benefiting from low oil prices.
“The country has favorable prospects for strong economic growth, and as a net oil importer, stands to benefit from a prolonged period of lower oil prices via lower inflation and a compression of its import bill,” Moody’s said.
Philippine Finance Undersecretary and Chief Economist Gil Beltran said in late January that falling oil prices would prove to be a boon for the Philippines by adding momentum to the already strong domestic economy and would pump around $6 billion into the pockets of its consumers, according to the Philippine Star newspaper.
Moody’s noted that more good news could be on the horizon for the Southeast Asian nation as a recent passage of legislation aimed at helping the government significantly increase revenue could lead to a further upgrade in the country’s sovereign-credit rating.
In December, the rating agency raised the Philippines’ credit rating to Baa2, 14 months after it had hiked the nation’s credit rating to the minimum investment-grade level of Baa3.
“Even though we have upgraded the Philippines in December to one notch above the investment-grade floor, it continues to be the country that generates the least amount of revenue” as a share of gross domestic product, Christian de Guzman, a senior analyst at Moody’s told reporters in Manila.
The analyst noted that Moody’s is concerned with the recent increase in political noise, which could impact the government’s ability to push pending reforms through Congress, as well as the tendency of politicians to pass populist measures ahead of an election year.
Presidential and congressional elections are slated to be held in May 2016 for the Southeast Asian nation.
Moody’s also said that the outlook for Philippine banks remains positive on the back of its robust economic growth and strong banking-sector fundamentals and that government spending on infrastructure projects will provide the tailwind for higher growth.
The Philippine central bank “has continued to bolster its strong track record of maintaining price and financial stability, contributing to favorable operating conditions for the country’s banking system,” Moody’s said.
Among the nations in the Asia-Pacific region — including those with highly-rated systems like Singapore and Hong Kong — the Philippine banking system is the only nation that enjoys a positive credit outlook from the rating agency.
The U.S. exchange-traded fund (ETF) — the iShares MSCI Philippines ETF (NYSEARCA:EPHE) — that tracks a broad-based index composed of Philippine equities is up nearly 10 percent so far in 2015 and up nearly 35 percent since the start of 2014.