Not so long ago, Indonesia and India were considered the Asian countries most likely to get investment-grade ratings from all three major ratings firms.
But the Philippines leapfrogged them and scored the trifecta first after Moody’s lifted its Philippine rating Thursday to Baa3, the lowest-rung on the investment-grade rating. Standard & Poor’s and Fitch raised the Philippines to investment grade earlier this year.
The designation could mean a wave of new investment for Manila as markets increasingly differentiate among developing economies.
Moody’s announcement cited robust economic growth, fiscal and debt consolidation, political stability and improved governance. It also noted the archipelago’s “relative lack of vulnerability” to external shocks such as the anticipated scale-back of the U.S. Federal Reserve’s economic stimulus.
That resilience is thanks to the Bangko Sentral ng Pilipinas, which has kept the Philippine banking system strong and funding conditions stable.
The BSP is a tough regulator, very cautious and “not afraid of shutting down banks,” said Christian de Guzman, a Singapore-based analyst at Moody’s.
The central bank has pressed local banks to adopt strict Basel III capital-adequacy standards, and has kept a close watch on banks’ exposure to the real-estate sector.
That has helped create a very strong banking system — the only one in the world, in fact, to enjoy a positive outlook from Moody’s. Even as the rest of emerging Asia reels from concerns about eventual Fed tapering, strong local banks have sheltered the Philippine economy.
Philippine “banks are in such great shape that they don’t pose a risk to the government,” Mr. de Guzman said.
Strong banks mean the government can borrow money locally rather than having to tap international capital markets just as global economic uncertainty is raising borrowing costs.
“Although the Philippine government is the largest sovereign issuer of U.S. dollar-denominated securities in Asia-Pacific based on total debt outstanding, it is now much more reliant on domestic sources of financing,” Moody’s said in its upgrade note Thursday.
On the policy front, the BSP has succeeded in anchoring inflation: Data out Friday showed consumer prices have risen just 2.8% on-year through September, below the central bank’s target for 2013 of 3.0%-5.0%.
In a research note Friday, ANZ Bank said the Philippines “remains in a sweet spot, posting high growth amid a low inflation environment.”
The country also is doing well on the fiscal front. Since coming to power in 2010, President Benigno Aquino III has doggedly pursued an anticorruption program that has improved the country’s image with investors, after years when the Philippines was regarded as the “sick man of Asia.” By taking aim at pork-barrel projects, the government has reduced its deficit and freed up spending for desperately needed infrastructure projects.
The economy grew at a blistering 7.5% pace in the second quarter – as fast as China — making the Philippines among the fastest-growing economies in the world.
With former investor darlings India and Indonesia troubled by persistent current-account deficits and lethargy on reform, it’s no surprise that the Philippines has surged ahead in the ratings game.
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