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A Korean debt supervisor has maintained his credit rating for the Philippines at a minimum investment level, citing tax reform and gains in infrastructure spending despite the continued rise in prices.
NICE Investors Service maintained the Philippine rating of "BBB", which is slightly above the minimum investment level, with "stable" prospects. This follows an upgrade announced in January 2016.
The rating applies to the country's long-term foreign currency borrowings, while a "BBB +" rating is assigned to local currency borrowings.
A higher credit score increases the chances of a country borrowing cheaply from abroad, especially as the Philippines seeks funding for infrastructure projects.
NICE cited the country's sustained economic momentum as a source of optimism. It expects Philippine growth to reach 6.3% this year, a slowdown from the 2017 real increase of 6.7% and the government's target of 6.5% to 6%. 9%. Economic growth reached an average of 6.3% last semester, while the third quarter performance will be announced on Thursday. Business worldThe survey of 15 economists revealed a median estimate of 6.3% for the July-September period, which, if achieved, will be faster than the 6% recorded in the second quarter.
The estimate of slower growth comes when NICE takes into account the impact of declining exports, a series of interest rate increases and basic effects .
However, the government's "Build, Build, Build" program is supposed to stimulate expansion.
"Due to the massive construction of infrastructure, public consumption and fixed investments should stimulate growth. Despite a somewhat expansionary fiscal stance in place, the budget deficit will remain at a healthy level and tax reform will help increase tax revenues, "said the evaluator in his October 30 report.
"Mastering inflation forecasts is essential to maintain stable growth in the Philippines."
Inflation averaged 5% for the nine-month period ending in September, one percentage point above the government's target range of 2-4% for the full year of 2018. L The debt observer said that this situation was due in part to concerns about supply impact of rising excise taxes on fuels and a lower peso.
The decision of Bangko Sentral ng Pilipinas (BSP) to raise policy rates by 150 basis points to moderate inflation expectations is seen as a positive step, with the debt observer pointing out that the recent spike in prices consumption should not "undermine macroeconomic stability in the short term".
At the same time, tax reforms should also help boost overall economic activity and should allow the government to remain cautious despite a growing budget deficit.
"The political direction of the Duterte administration (…) to increase public spending by broadening the tax base is considered appropriate, given the need to invest in infrastructure," said credit analysts.
"The tax reform and the acceleration of investments in government infrastructure already show tangible effects in 2018."
Republic Act No. 10963, or the Tax Reform Act on Acceleration and Inclusion, required, among other things, additional duties on fuels, cigarettes, alcohol and sugar beverages from January 1st.
This helped the government to generate total revenues of P2,112 billion at the end of September, 17% more than a year ago.
Nevertheless, NICE said it would monitor the government's ability to generate revenue as well as the fate of successive reforms in tax reform, noting that these measures would indicate whether the Philippines can remain stable while spending on State increase.
The debt observer pointed out that the second package of tax reforms, which reduces the corporate tax rate and simplifies the tax incentive system, is "desirable". He pointed out, however, that the planned removal of redundant benefits could result in a contraction of investment, business sentiment and leave people out of work in the short term.
NICE said the Philippines could expect to cope with rising oil prices, rising global yields and the intensification of the US-China trade war. large dollar reserves, remittances and small foreign portfolio investments. – Melissa Luz T. Lopez
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