S&P affirms PH credit rating but warns of 'uncertainties'

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(File photo)

Metro Manila (CNN Philippines) — Standard & Poor's has affirmed the country's credit rating, but not before airing concern about "rising uncertainties" surrounding the government.

In a statement on Wednesday, S&P cited the country for its ample supply of foreign exchange and its low levels of foreign debt. The Philippines' credit rating was kept at BBB, equivalent to investment grade.

An investment grade country is widely considered one capable of repaying its debts. Credit ratings are an indicator of risk, and a high rating brings down the borrowing cost of the government and corporates.

READ: Fitch affirms PH's investment grade rating

However, S&P tagged new downsides for those looking to invest in the country: "rising uncertainties surrounding the stability, predictability, and accountability of its new government."

President Rodrigo Duterte's aggressive campaign for law and order has been linked to a rise in alleged extrajudicial killings. Independent watchdogs estimate there have been about 3,000 drug-related deaths since Duterte took power in July.

"We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to the legitimacy of the judiciary, media, and other democratic institutions," it said.

READ: Markets wary of controversial Duterte

On top of that, the President has rejected any international criticism of his war on drugs. He has threatened to pull out the country from the United Nations and cursed off the United States and the European Union.

"[W]e believe that the stability and predictability of policymaking has diminished somewhat," S&P said.

The Philippine economy, meanwhile, is still healthy, the credit rater said.

It saw government finances remaining stable, with the deficit averaging just 1% of the gross domestic product (GDP) from 2016 to 2018. This should bring down government debt to just 18% of GDP by 2019, down from its peak of 28% in 2010, it said.

The country also has an ample supply of dollars to pay off its foreign debt, S&P added.

The current account should register a surplus of 2% of GDP until 2019, it estimated. Much of the foreign currency will come from overseas remittances, call center receipts, and earnings from the tourism and maritime industries.

Balancing the strengths and weaknesses, S&P gave a stable outlook to the Philippines' credit rating. A credit rating upgrade was unlikely in the next two years, it said.

Amando Tetangco, Jr., central bank governor, welcomed S&P's move to keep the Philippines at investment grade.

"[This] is a testament that the country's economic gains have been built from deeply rooted structural and sound policy reforms over the years," Tetangco said in a statement on Wednesday.

Finance Secretary Sonny Dominguez, though, lamented S&P's warnings.

"If one is able to see through the noise created by negative headlines, he may have better and comprehensive understanding of the exciting, positive changes that are ahead of the Philippines," Dominguez said in a statement.

He emphasized that the administration continued to focus on sustaining economic growth and reducing poverty.

READ: 'Foreign investors care about money, not drug deaths' — biz leader