THE GOVERNMENT is anticipating much lower borrowing costs moving forward amid further rate cuts by the Bangko Sentral ng Pilipinas (BSP) and improved credit ratings.
“Our recent credit rating upgrade will help reduce our borrowing costs. The reduction of BSP rates will help increase economic growth and also reduce our domestic borrowing costs,” Finance Secretary Ralph G. Recto told BusinessWorld in a text message.
Earlier this month, Japan-based Rating and Investment Information, Inc. upgraded the Philippines’ investment grade rating to “A-.”
The country also currently holds a “A-” rating from the Japan Credit Rating Agency but has yet to secure an “A” rating from the “big three” credit raters.
Mr. Recto said that the government has no plans to increase or revise its borrowing program for now.
“We have a fiscal plan to follow. There are no plans to increase our borrowings,” he added.
The National Government’s (NG) borrowing program is set at P2.57 trillion this year, of which 75% will come from domestic sources. It borrows from external and local sources to fund a budget deficit capped at 5.6% of the gross domestic product.
The latest data from the Treasury showed that debt payments jumped by 41.29% to P1.28 trillion in the first half. The government has allocated P2.03 trillion in debt servicing for this year.
National Treasurer Sharon P. Almanza likewise said that the current borrowing plan has “taken into account” the central bank’s easing cycle.
The Monetary Board earlier this month delivered a 25-basis-point (bp) rate cut, bringing the benchmark rate to 6.25% from the over-17 year high of 6.5%.
The central bank could cut rates by another 25 bps in the fourth quarter, BSP Governor Eli M. Remolona, Jr. earlier said.
“Upcoming monetary policy easing will bode well for NG’s borrowing plan because it will now be cheaper,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said.
Apart from monetary easing, the country’s investment grade ratings will help support cheaper borrowings.
“The recent upgrade and affirmation of current credit ratings from the aforementioned ratings agencies gives the NG more borrowing opportunities abroad,” Mr. Asuncion said.
Last week, Moody’s Ratings affirmed the Philippines’ investment grade rating of “Baa2” with a “stable” outlook. The country also holds ratings of “BBB” from Fitch Ratings and “BBB+” from S&P Global Ratings.
“If the NG continues with its consolidation plan and follows through, the A-rating is very possible. Simply put, the coveted A-rating is really doable and reachable,” Mr. Asuncion said.
Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said upgraded credit ratings will help the country attract investments and support overall growth.
“Upgrades in investment grade ratings of the Philippines will allow our government to position the economy as an investment destination, given stabilizing macroeconomic indicators, relaxing of interest rates in the foreseeable future, and ability of the government to support a conducive investment environment,” he said.
The government is aiming to achieve an “A” rating status by the end of the administration or by 2028.
“Should the Philippine economy continue to demonstrate stable macroeconomic fundamentals, the economy is on track to achieve successive rating upgrades,” Mr. Rivera said.
