Yesterday and today, I came across several articles in the newspapers and news reports on TV and radio about the “so-called” upgrade in our country’s credit rating by international rating agency, Standard & Poor’s. That is quite inaccurate.
What Standard & Poor’s actually did was only to change the outlook from negative to stable. The rating for the sovereign (the Philippines), however, remained unchanged at BB- (BB minus). Moody’s, on the other hand, kept the outlook at negative, with the rating unchanged at B1.
Both rating agencies did not upgrade nor downgrade their respective ratings for the Philippines. What they changed was the outlook. An outlook is just an indication as to the direction that a rating may take within a specified time frame. When you say that the outlook for a rating is “stable,” it does not mean that the country is stable. It only means that it is likely that the rating will remain where it is for a specified time frame. In that context, what Standard & Poor’s is saying that it is likely that the Philippines will remain below investment grade going forward. Still, we can rejoice as it is not likely that our rating will even go lower in the near future.
A negative outlook means that it is likely that the rating will be adjusted downwards or will be downgraded. A positive outlook means that some improvement in rating may take place. A developing outlook means that there are certain developments that are being watched closely to see what the impact on the rating will be.
So, when you read the news these days, please bear these in mind: the Philippines’ credit rating remains unchanged. It is only the outlook that has been changed. Outlooks denote how the rating might possibly move going forward. What’s more interesting for me is that Moody’s and Standard & Poor’s have called it quite differently. Standard & Poor’s sees that the rating will most likely remain where it is. Moody’s, with its negative outlook, thinks it might still possibly downgrade our country’s credit rating. I wonder which rating agency will be proven correct over time. Let’s wait and see.
To learn about domestic credit ratings in the Philippines, please visit the PhilRatings website.