Investment grade is an indication that a certain country has the capacity to fulfill its financial commitments efficiently. Good place for investments, more opportunities for employment, stable growth and good governance are the key factors that lead to this credit rating.
Recently, the Philippines received its first investment grade by the Fitch Ratings, an international debt watcher.The debt watcher cited that the country is poised for growth, as it has managed to lower debt interest, which gave the country the opportunity to use its savings for basic services and development efforts to the society. This would mean more jobs for the people, higher business confidence, and more interventions on social services.
According to The Philippine Star, President Aquino expressed that the investment grade means “lower interest rates on our debt and more investors buying our securities.” This also implies that there will be a surge of investments and jobs for the people. “A virtuous cycle of growth, empowerment and inclusiveness that will redound to the benefit of Filipinos across all sectors of society,” Aquino claims.
Fitch Ratings’ review
Fitch Ratings took a macroeconomic review of the country a month ago before the release of the rating. It gave the country a higher rating compared to Moody’s Investors Service and Standard & Poor’s Ratings Service, which graded the country one mark lower.
Fitch elaborated that the rating comes from “the country’s strong external payments position, good inflation management and fiscal consolidation efforts that kept the budget deficit on the loop.”The agency also shared that the Philippines continues to improve with a 6.6 percent growth in 2012 regardless of the global economic crisis. They expected the country to grow at 5.5 percent this year.
The agency also gave credit to the Arroyo administration, which was responsible for the improvement of fiscal management—lowering foreign liabilities and longer debt payment terms.
Fitch also claimed that the Philippines withstood a stable economy over a severe economic or financial shock sufficient to cause an important decline in GDP and trigger strain in the financial system.
Before this investment grade, the Philippines has benefited from 11 positive credit rating marks.
Inclusive growth?
Aquino established that the investment grade is an institutional affirmation of the country’s good governance. This means that the country has shown exemplary performance in fiscal management and leadership that led to a resilient economy amidst the chaotic facades of the global arena.
Secretary of Finance Cesar Purisima shared on one interview that this grade is the only way the country could maintain inclusive economic growth in the long term and achieve our developmental goals (www.philstar.com).
In addition, Budget Secretary Florencio Abad claimed that this grade affects the reinforcement of the country’s manufacturing sector specifically the agri-based industries thus, more inclusive and more sustainable growth.
Meanwhile, critics continue to attack Aquino arguing that such economic gains attained were not felt by the masses. These gains were poured out from Overseas Filipino Workers (OFWs)’ remittances instead from investments especially foreign direct investments (FDIs). Although such economic outburst, having high business confidence and more foreign funds has been made, there is no effect in the FDIs of the country. It continues to trail behind its neighbors.
Investment grade gives a big opportunity as well as a challenge for the Philippine government to continue its good economic performance and good governance reforms. The country, however, still has to face many challenges, which includes sustaining economic growth far and strengthening key industries like the services and manufacturing industries.
