Diokno hopes tax reform passage will result in PHL credit upgrade
THE PHILIPPINES’ credit position could improve should the Finance department’s comprehensive tax reform program make progress through the last two plenary sessions of the House of Representatives, or by end of May, the Budget Secretary said.
“I think that will actually strengthen our position; if we pass it, our [credit rating] will be upgraded. I’m optimistic we may be upgraded,” Department of Budget and Management (DBM) Secretary Benjamin E. Diokno told reporters on the sidelines of the Open Government Dialogues yesterday, referring to the country’s investment-grade and the first package of the government’s tax reform plan.
After the session was canceled on Tuesday, the house bill is scheduled to be opened for plenary debate and approval on Monday, with House leaders committing to finish the first package before May 31, the last session day of Congress.
The substitute bill, House Bill 5636 or the “Tax Reform for Acceleration and Inclusion,” which harmonized legislation after the filing of the Finance department-backed House Bill 4774, was approved with minimal changes on May 3.
HB 5636, which was contained under Committee Report No. 229, was to be sponsored by House Ways and Means committee chairman Rep. Dakila Carl E. Cua had Tuesday’s plenary session gone ahead.
Once the bill is approved on final reading, it will move forward to the Senate for another round of deliberations.
Several global credit raters view the tax reform package to be a positive development for the Philippines.
Fitch Ratings, Inc. affirmed the Philippines’ credit grade with a positive outlook in March, noting that the government’s tax reform package is poised to boost the country’s revenue.
Meanwhile, Moody’s Investors Service raised its growth projection for the Philippines in an October credit analysis, pointing out that “the passage of comprehensive tax reform would be credit-positive.”
Since December 2014, Moody’s rates the country “Baa2” with a stable outlook, or just above minimum investment grade.
S&P Global Ratings also retained its ratings and outlook on the Philippines at “BBB” long-term and “A-2,” both a notch above investment grade, with the country’s outlook “stable.” It also noted that lower ratings will be given should the government’s reform agenda stall and produce higher-than-expected budget deficits.
The Department of Finance has projected the fiscal deficit rising to 3.7% this year, well above the government’s programmed 3% of total gross domestic product and below the 4.1% initial estimate, as the government spends for infrastructure and social services.
The International Monetary Fund has noted that the passage of the first package of the tax reform plan will be vital in sustaining the large deficit and spending for this year.