MANILA, Philippines – S&P Global Ratings has kept the Philippines’ credit rating a notch above investment grade with a ‘stable’ outlook but took note of the lower middle-income economy, as well as rising uncertainties under the Duterte administration.

In its latest assessment, S&P said it affirmed the long-term credit rating of ‘BBB’ and short-term credit rating of ‘A-2’ to “reflect our assessment of its lower middle-income economy and rising uncertainties surrounding the stability, predictability, and accountability of its new government.”

The rating agency explained the stable outlook balances the country’s lower middle-income economy and diminished policy stability, predictability, and accountability against its strong external position, which features rising foreign exchange reserves and low and declining external debt.

“A higher rating is unlikely over our two-year ratings horizon. We may raise the ratings if continued fiscal improvements under the new administration boost investment and economic growth prospects, or if improvements in the policy environment lead us to a better assessment of institutional and governance effectiveness,” it said.

On the other hand, the debt watcher could downgrade the country’s credit ratings if the reform agenda stalls or if there is a reversal of the recent gains in its fiscal or external positions under the new administration.

The Duterte administration has unveiled a “10 point plan” to reduce poverty, promote a “law abiding society” and achieve peace settlements with separatists in Mindanao.

It also committed to focus on macroeconomic stability guided by orthodox fiscal, economic and development policies.

S&P, however, noted President Duterte has a strong focus on improving “law and order,” which has allegedly resulted in numerous instances of extrajudicial killings since he came to power.

“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,” S&P said.

Debt watchers have noted the tirade made by President Duterte against US President Barack Obama, UN secretary general Ban Ki-moon, and recently against the European Union for allegedly meddling in the country’s affairs.

“When combined with the President’s policy pronouncements elsewhere on foreign policy and national security, we believe that the stability and predictability of policymaking has diminished somewhat,” S&P said.

In spite of additional spending on poverty reduction and social and economic infrastructure, S&P sees the country’s fiscal deficit to average around one percent of GDP from 2016 to 2018

“We believe that the rising pressure on the Philippines’ institutional and governance settings has the potential to hamper the ability to develop and implement swift policy responses,” it said.

BSP Governor Amando Tetangco Jr. said the Philippines managed to keep its investment grade credit rating from S&P, Moody’s Investor Service, and Fitch Ratings despite the changing of the guards last June 30.

“The Philippines’ ability to keep its credit rating well within the investment grade scale, which has transcended change in political leadership, 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.

“Through continued conduct of sound monetary policy and prudent bank supervision, as well as efficient management of the country’s external accounts, the BSP will help make sure these economic gains are further enhanced moving forward,” he said.

As the country’s GDP growth accelerated to seven percent in the second quarter from 6.8 percent in the first quarter, S&P sees the GDP expanding by 6.1 percent this year and 6.3 percent next year.

Moody’s Investor Service rates the country’s sovereign at Baa2 or one notch above investment grade on a stable outlook while the BBB- rating of Fitch Ratings is equivalent to minimum investment grade on a positive outlook.