THE Philippines may get another upgrade on its credit rating if the tax reform and infrastructure development plans under the Duterte administration would be realized, a credit watchdog said.
In its latest commentary on the Philippines released October 17, Moody’s Investors Service described the concrete plans of government to reform the tax system and accelerate infrastructure investments as being anchored on a “well-defined development agenda.”
“In particular, an acceleration of infrastructure development and the passage of comprehensive tax reform would be credit positive,” it said.
Other factors that, if achieved, can drive the country’s credit rating moving forward are sustained rise in government revenues and further improvement in its external debt profile, Moody’s said.
At the moment, Moody’s assigns the Philippines a rating of Baa2, which is a notch above the minimum investment grade. This rating carries a “stable” outlook, indicating it is unlikely to change over the short term.
A rating within the investment-grade scale indicates a government’s ability and willingness to pay debts as they fall due, given the generally healthy economic and political conditions of a country. As such, an investment-grade credit rating gives a country a favorable image before foreign and local investors, among other stakeholders, thereby helping boost investments.
Finance Secretary Carlos Dominguez III welcomed the recognition given by Moody’s to the Duterte administration’s economic programs.
“The positive mention by Moody’s of the tax reform and infrastructure plans of the Duterte administration proves that by looking beyond headline noise, one would see sound macroeconomic fundamentals and a robust, credible, and sensible overall socioeconomic development agenda for the Philippines,” Dominguez said.
“The Duterte administration has been clear since the very beginning of what it wants to achieve for our economy over the next six years, and we will strive to remain on course to hit it: sustained and robust growth that will have lifted significantly more Filipinos out of poverty by 2022,” he added.
Investor Relations Office (IRO) Executive Director Editha Martin said recognition by credit rating firms and other stakeholders of reforms and sound policies in the Philippines is always welcome.
"This is because the international community’s awareness of positive developments in our country is important in sustaining favorable investor sentiment,” she said.
One of the key features of the tax reform plan, which has been submitted to Congress for legislation, is the phased-in reduction of corporate and income tax rates to 25 percent. At present, corporate income tax is set at 30 percent, while the maximum individual income tax is at 32 percent.
On infrastructure development, the Duterte administration’s agenda entails consistent rise of the government’s annual spending for roads, bridges, transport facilities, and related projects from 5.4 percent of the country’s gross domestic product (GDP) in 2017 to 7.1 percent of GDP by 2022.
At 7.1 percent, the Philippines public infrastructure spending/GDP is expected to exceed those of neighboring countries.
The focus of infrastructure spending will be on areas outside Mega Manila, particularly on the country’s poorest regions. This is to encourage more businesses to set up shops in the countryside and, therefore, spread growth throughout the country.
“The effectiveness of infrastructure development will be a major driver of long-term economic diversification and ultimately growth,” Moody’s said. (SDR/Sunnex)