Japanese debt watcher affirms investment grade rating on PHL

By Joann Santiago

MANILA, June 12 (PNA) — Japan Credit Rating Agency Ltd. (JCR) has affirmed its investment grade rating on the Philippines at BBB with stable outlook as it sees above six percent expansion for the economy for 2014 on back of strong domestic demand.

In a statement, the Japanese credit rating agency said its ratings on the country “reflect resilience to external shocks, robust domestic demand upderpinned by OFW (overseas Filipino workers’) remittances, and progress on improvement of fiscal soundness.”

It believes that the government’s fiscal position will further improve in line with the target to bring the proportion of fiscal deficit to Gross Domestic Product (GDP) to two percent by 2016.

“It is imperative for the government to further strengthen its tax base in order to ensure infrastructure development without undermining the momentum for improvement of its fiscal position,” it said.

The government has increased spending on infrastructure but the debt watcher said this is not enough, thus, it is a big risks on the credit rating.

”A growth rate higher than six percent is projected in 2014. The country definitely needs to develop infrastructure and improve the investment environment to attain rapid and sustainable economic growth,” the statement said.

And while lack of infrastructure poses a risk to the ratings, this is countered by the strong external payments position and robust private consumption, which in turn is backed by the inflows from Filipinos abroad.

Continued improvement and resiliency of the banking sector is also a plus for the Philippines with banks’ non-performing loan (NPLs) ratio down to 2.8 percent at the end of 2013.

JCR, on the other hand, cited that benchmark ratio of bank lending to GDP is at 42.4 percent as of end-2013, which is lower compared to neighboring countries.

”This indicates that a further deepening and diversification of the financial sector is imperative to promote capital formation through increased equipment investment,” it added. (PNA)