By Jasper Y. Arcalas, May 23 2023; Business Mirror
Fitch Ratings reaffirmed its BBB credit rating for the Philippines and improved its economic outlook for the country as it is projected a “return” to “strong” medium-term growth after the Covid-19 pandemic.
In its report, the credit rating agency revised its outlook on the Philippines’s long-term foreign currency issuer default rating (IDR) to stable from negative.
Fitch Ratings explained that the revision “reflects” its “confidence” that the Philippines is now “returning” to strong economic growth post-pandemic.
Furthermore, the anticipated better economic performance would support the “sustained” reduction in the government’s debt-to-GDP ratio.
“The revision also reflects our assessment that the Philippines’ economic policy framework remains sound and in line with ‘BBB’ peers, despite its low scores on World Bank Governance indicators,” the debt watcher said in its report.
“The revision comes despite some relative deterioration over the last years in credit metrics that previously had been strengths, including in government debt/GDP and net external debt/GDP,” it added.
Fitch Ratings said it estimates that the Philippines’ real GDP growth would be at above 6 percent over the medium term, which it noted is “considerably stronger” than the BBB median of 3 percent.
Fitch Ratings added that the 6-percent GDP reflects “normalization” of the country’s economic activity after the Covid-19 pandemic and positive effects of the government’s investment program, following a 7.6-percent economic growth last year. “Ongoing reforms to the business environment and investment regulations create upside potential for growth,” it said.
The credit rating agency projected the country’s inflation “to moderate” to an average of about 4 percent next year, which is in line with the Bangko Sentral ng Pilipinas’s upper-end inflation target range.
Fitch Ratings said its inflation projection for the Philippines is based on “lower commodity prices, base effects and 425 [basis points] of rate hikes since the start of 2022.”
It explained, “We continue to view the central bank’s inflation-targeting framework and flexible exchange rate regime as credible. Last year’s interventions to mitigate peso volatility have been reversed.”
“Monetary financing to the government during the pandemic was more limited and was reversed more quickly than in some peers. The government’s response to the commodity price shock has been measured, for example in resisting calls to introduce fuel subsidies,” it added.
In a statement, Finance Secretary Benjamin E. Diokno welcomed the Fitch Ratings’ report and claimed that the improved outlook for the Philippines is a “testament” to the country’s “robust macroeconomic fundamentals.”
Diokno noted that the improved economic growth was “evidenced” by the 7.6-percent GDP last year and 6.4 percent GDP in the first quarter of the year.
“Fitch’s latest rating action reflects the strong economic activity which can be fostered by the improved investment climate in the country. The country’s growth is further supported by the steady improvement of our labor and employment conditions,” Diokno said.
“We will continue to rely on structural reforms that will broaden opportunities and enhance the country’s productivity, particularly through higher investments in infrastructure. The full implementation of the six-year Medium-Term Fiscal Framework will support these investments while promoting fiscal sustainability,” he added.