The amazing credit upgrade received by the government from a Japanese debt watcher amid the debilitating outbreak could likely serve as a sneaky prelude to a debt trap.
A debt trap is a situation in which debts become difficult or impossible to repay.
In recent weeks, the Philippines has secured multi-million dollar loans from global lenders to fund the government’s costly coronavirus disease 2019 (CoVid) response.
The massive response aims to save the lives of millions of poor Filipinos affected by the outbreak and support the declining economy as a result of the lockdowns.
Most economists could not determine a timetable for economic recovery as the threat of the killer virus remains in the absence of the needed vaccine.
Despite this, the unexpected A credit rating for the country came.
The Tokyo-based Japan Credit Rating Agency (JCR) gave the Philippines a credit upgrade rating to A- from BBB+ to reflect the alleged resilience of the economy amid the pandemic.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the credit rating upgrade from JCR bodes well for the government’s fund-raising activities.
Improvements in the country’s investment grade ratings help the government to easily access funding at favorable costs. It also helps boost overall investor perception on the country.
Government coffers are running dry owing to the seemingly endless release of funds for the corruption-laden social amelioration program while business establishments are laying off workers due to falling revenues.
Despite this, JCR depicted a better Philippine economy to suggest that the country is in a position to take more loans.
JCR said its decision to raise the Philippines’ credit rating came on the back of its assessment that the impact of the COVID-19 crisis on the economy and the government’s fiscal standing will be temporary given the country’s strong fundamentals going into the crisis, the massive relief measures, as well as the pursuit of important legislation, such as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).
“JCR holds that a downturn will be limited given the country’s strengthened economic base, resilient external position, and the government’s economic stimulus package totaling more than nine percent of GDP,” the rating company said.
It also considered that the fiscal soundness will not be impaired because while the fiscal deficit may widen, the package at this time is justifiable and the government debt will remain comparatively subdued.
A credit rating is a measure of an entity’s capacity to settle its debts. The higher the rating, the better the perception of investors on a borrower, and therefore the lower the interest charge on debts.
Earlier, the new loans recently availed by the government from the World Bank (WB) and the Asian Development Bank (ADB) increased its total debt to a record high of P8.6 trillion in April this year.
According to the Bureau of Treasury (BTr), the figure represents a 1.5 percent or P122.89 jump from the P8.48 trillion in March.
In April, the government availed a $1.5 trillion loan from ADB for the COVID-19 Active Response and Expenditure Program.
It secured another $200 million loan from ADB for the Social Protection Support Project.
Likewise, the WB extended to government a $500 million loan for the Third Disaster Risk Management Development Policy Loan.
Another $100 million financing assistance for the COVID-19 Emergency Response Project of the Department of Health was extended by WB.
Thus, external debt rose by 2.7 percent to P2.74 trillion from P2.66 trillion in the previous month.