Credit rating upgrade bodes well for PHL global bond offering

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MANILA, December 15, 2017 — The  recent move by Fitch Ratings to upgrade the Philippines’ long-term foreign currency rating to “BBB” augurs well for the Philippines’ next global bond offering and provides a resounding endorsement of the Duterte administration’s economic strategy anchored on a comprehensive tax reform plan and an unprecedented infrastructure modernization program, according to the country’s top treasury and finance officials.

National Treasurer Rosalia de Leon welcomed the credit ratings upgrade by Fitch, which recently assigned a “stable” outlook, as the Bureau of Treasury (BTr) prepares the country’s next global bond offering this coming year while maintaining the borrowing mix at 80 percent from domestic sources and 20 percent from foreign markets.

“We welcome this latest favorable action from Fitch, which is a resounding testament to the country’s sustained strong economic fundamentals and favorable growth trajectory. This augurs well for our next global bond offering even as the market has priced our bonds much tighter than our ratings,” De Leon said.

She said the primary focus of the Duterte administration’s economic team is “on delivering results to create more jobs and improve the lives of our people.”

Finance Undersecretary and Chief Economist Gil Beltran, for his part, said the upgrade was the result of a stronger public sector finance outlook for the Philippines “brought about by improved tax administration and the expected passage of tax reforms, along with a prudent monetary policy in the face of global financial volatility.”

“Also, we have unveiled a ‘Build, Build, Build’ infrastructure program, sectoral reforms and a list of Ease of Doing Business programs that will enhance the competitiveness of domestic industries and boost GDP growth to seven to eight percent in the medium term,” Beltran said.

Fitch’s upgrade of the Philippines’ credit rating was the first since March 2013. Its rating for the Philippines is now at par with those of S&P Global Ratings and Moody’s Investor Service.

Finance Secretary Carlos Dominguez III said earlier that numerous international banking institutions, including European banks, have expressed interest in the Philippines’ planned $1 billion dollar-denominated global bond float early next year.

Deputy Treasurer Erwin Sta. Ana also said that both banks and potential investors have been providing positive feedback on the planned Republic of the Philippines (ROP) bond issuance.

According to the BTR, the government plans to borrow P888.227 billion in 2018, with 20 percent or P176.269 billion of the amount sourced from foreign markets.

Dominguez said that, “We are pleased that Fitch is finally convinced that the Philippine economy now is much stronger and more resilient than in 2013, when they granted the Philippines its first investment grade credit rating of BBB-.”

“Our macroeconomic fundamentals are on the par with, if not better than, those of higher-rated sovereigns and continue to improve. Our economic growth in recent years has been one of the fastest in the region and among our rating peers. Our fiscal position is much stronger now on account of administrative measures we are implementing to improve revenue collection efficiency of the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC), and the budget and expenditure reforms being pursued by the Department of Budget and Management (DBM),” Dominguez said.

“Our growth prospects are also brighter compared with those of our neighbors and peers.  The Duterte administration is fast-tracking crucial structural reforms – including the Comprehensive Tax Reform Program, the bold infrastructure development agenda, and liberalization of the investment regime. All this will help accelerate economic expansion, spread development, and increase income in lagging regions.  While we are not targeting ratings per se, I am confident that with these reforms, there will be more positive rating actions in the next couple of years,” Dominguez added.

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