Moody’s Investors Service has upheld the Philippines’ investment-grade credit rating at “Baa2” with a “stable” outlook, citing key economic reforms, fiscal consolidation efforts, and strong macroeconomic fundamentals as the primary reasons for the decision.
According to the credit rating agency, the reforms enacted in recent years to liberalize the Philippine economy are expected to bolster medium-term growth prospects by fostering a business-friendly environment and attracting foreign investments.
In the second quarter of 2024, the Philippine Statistics Authority reported a 6.3% year-on-year growth in gross domestic product (GDP). Additionally, net inflows of foreign direct investment (FDI) from January to May 2024 rose by 15.8% to USD 4.0 billion, compared to the same period in 2023.
Moody’s anticipates that investment inflows will continue to increase through 2024-2025, driven by strong investor interest in the energy, manufacturing, and information and communications sectors.
Moody’s also highlighted the Marcos administration’s goal to raise infrastructure investments to 5.0% of GDP annually under the “Build Better More” initiative, which aims to address the country’s infrastructure gaps.
In response, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. welcomed Moody’s reaffirmation of the country’s investment-grade rating, stating that the BSP will continue to work closely with the government to further improve the nation’s credit ratings.
Moody’s Credit Ratings
Moody’s Investors Service is one of the “Big Three” credit rating agencies globally, alongside Standard & Poor’s (S&P) and Fitch Ratings. Established in 1909, Moody’s assesses the creditworthiness of borrowers, including sovereign nations, corporations, and other entities.
The agency uses a standardized rating scale to evaluate the ability of these entities to meet their debt obligations. For sovereign nations, Moody’s ratings range from “Aaa” (highest) to “C” (lowest), with numerous subcategories to indicate varying degrees of credit risk.
A “Baa2” rating, like the one currently held by the Philippines, is considered investment-grade, meaning the nation is seen as a relatively stable investment with a low risk of default. The “stable” outlook further indicates that Moody’s does not expect significant changes in the rating in the near term.
Moody’s ratings are influential in global finance, affecting the interest rates at which countries can borrow, the cost of insuring against default, and overall investor confidence. A strong credit rating can attract foreign investments and foster economic growth, while a downgrade can lead to higher borrowing costs and reduced investor interest.