Fitch Gives the Philippines its First Investment Grade Rating

On Wednesday, the Philippines received its first investment grade rating from Fitch Ratings. The highly valued credit rating is expected to boost the Philippines’ long-term future for growth and increase its investment potential. According to Fitch, the economic outlook of the country is stable.

The “BBB-” rating gives a very big thumbs-up sign to the government, a positive confidence vote to the country’s efforts to have financial sustainability, increase spending on infrastructure and stamp down corruption. This is very good news for this small country, when most of the larger Western economies are struggling to keep their credit rating from being downgraded.

Fitch Ratings said the country continues to have a surplus in current accounts largely supported by the inflow of remittances from overseas workers. The growth in the Philippines is less volatile, steady and stronger compared to many of its peers over a five-year period. Thus the country being a net external creditor became possible. The credit rating company also predicts a GDP growth of 5.0 to 5.5 percent in the near future.

Philippine President Benigno Aquino III aims to achieve an economic growth in the range of about 8.5% before his term ends in 2016, which could be achieved by increasing the income levels of Filipinos through the creation of more jobs. It is an ambitious project because close to one-third of the Philippine population is below the poverty line and the country has a large number of ordinary Filipinos relying on the remittances of more than 10 million overseas workers.

What the credit rating means to the Philippines and the average Filipinos

The credit rating upgrade provides a big boost to the country’s stock exchange as more investors are buying stocks. It provides the country with low interest for the country’s debts. It could and probably would, bring more investors into the Philippines. It would be a challenge as global companies flock to this side of the world looking for higher returns for their investments.

While a credit rating makes a positive impact in investment confidence in the Philippines, there will be more work to be done. Reforms have to be made so that the increase in investment will equal an increase in the revenue of the government. It could give the Central Bank of the Philippines more headaches in terms of managing liquidity in the heels of higher capital inflows. They would also have to deal with the volatility of the exchange rate.

A stronger peso against the dollar means a lower exchange rate in the Philippines. This means that ordinary Filipinos, who do not even know what “stocks” mean, and are dependent on foreign currency remittances from relatives working in foreign countries will receive a lower income. This means that the exchange rate, which is about 40 pesos to the dollar might even drop lower, which means the already poor Filipinos will only get poorer.