MANY emerging economies rely on foreign creditors to bridge the gap between their exports and imports. The Philippines is a bit different. It relies on overseas employers. Over 10m Filipinos, equivalent to about a quarter of the country’s labour force, live or work abroad, permanently or temporarily, legally or illegally, in over 200 countries. Their remittances are equivalent to 8.5% of GDP, helping the country to plug its trade deficit and amass over $80 billion of currency reserves. As a result, the Philippines has become a net creditor to the rest of the world (see chart), not just a net supplier of labour.

These impregnable external finances are one reason why Fitch, a ratings agency, awarded the Philippines its first ever investment-grade credit rating on March 28th. The upgrade was long awaited and warmly greeted. The governor of the central bank was at first quoted as saying that it represented “the seal of God”, which might be the nicest thing anyone has ever said about a ratings agency. His actual words were more mundane: he said it was “the seal of good…good housekeeping”.
Both this government and its predecessor have worked hard to put the country’s fiscal house in order, reducing its debt from 68% of GDP in 2003 to 41% last year, while refinancing it more cheaply, lengthening its maturity (to over ten years on average) and increasing the proportion denominated in pesos, for which the world shows strong appetite.

Now the government is going beyond housekeeping to much needed repairs. The public finances rest on narrow foundations: the government collected less than 13% of GDP in taxes last year, a paltry ratio that helps explain why public investment amounted to less than 3% of the economy. To raise revenues, it last year passed a “sin tax” on tobacco and alcohol, which survived the Senate by a single vote and came into effect on January 1st. In a country with powerful brewers and tobacco farmers, the tax took “political courage”, says Andrew Colquhoun of Fitch.

Compare world debt levels over time with our updated interactive debt guide

In principle, the upgrade should widen the pool of investors willing to buy the government’s debt and lower its cost of borrowing. Graduation to investment grade reduces the “spread” between a country’s borrowing costs and American Treasury yields by over a third, according to Laura Jaramillo and Catalina Michelle Tejada of the IMF.

But the Philippines does not suffer from a lack of foreign-investor interest. Indeed the central bank has been fretting about excessive capital inflows, which might push up the peso or lead to inflation or asset bubbles. Perhaps the upgrade, and the progress it reflects, will persuade some overseas workers to return to the Philippines. That would be the most convincing seal of approval for the economy.