London-based Fitch Ratings has maintained its stable outlook for the Philippines, saying the country is “reasonably healthy” despite the tumult in the global economy.
Bangko Sentral ng Pilipinas Governor Amando Tetangco said the outlook indicated Fitch’s confidence in the Philippines’ ability to weather the global slowdown or even recession in the country’s major trading partners.
A stable outlook means that the Philippines stays at its current credit ratings until the next Fitch review.
In a television interview, Fitch managing director James McCormack said the Philippines, China and Indonesia are the only countries that are not in Fitch Ratings’ negative watch.
Speaking at the weekly Tuesday Club breakfast forum at the EDSA Shangri-La yesterday, Tetangco said Fitch’s action reaffirmed the view of monetary officials that the country’s external position is strong enough to buttress the economy even amid the global slowdown.
“The Philippines is still reasonably healthy. Public finance is well-managed in the last couple of years,” McCormack said.
McCormack said weaker growth in the region was not necessarily negative from a sovereign creditor’s perspective.
China, according to McCormack, was still exceptionally well based on its “extremely high” foreign exchange reserves.
The Philippines’ reserves may not be as big as China’s but its external position is strong.
The Bangko Sentral ng Pilipinas said the country’s reserves stood at $36.2 billion as of November 2008 and Tetangco said authorities expect a further buildup this year.
Tetangco said that even with the anticipated slowdown in foreign short-term investments as well as in exports and remittances, the country’s external position would be robust because remittances would still come in and some export sectors might even benefit from the global slowdown, particularly business process outsourcing.
“I think in case of the Philippines, it’s been largely left aside in terms of what’s going on in international capital markets; and it still benefits from reasonably strong remittance flows,” McCormack said.
Remittances would probably suffer but McCormack said the country would remain reasonably healthy.
“Public finance is well-managed in the Philippines in last couple of years,” he said. “We don’t think it’s sustainable in the medium term but I think the recent record has been quite good so the Philippines looks okay.”
According to Tetangco, Fitch’s action has validated the BSP’s view that the country’s external position is resilient and healthy. He said the Fitch outlook would boost investor confidence amid the panic that struck the markets last year.
Tetangco said the country has enough foreign exchange buffers despite portfolio outflows because of the adequate reserves built up by the BSP in response to the expected slowdown in investments and exports in 2009.
“It is difficult to predict the extent risk appetite will retreat from the market,” Tetangco said. “But as I said, our reserves continue to be at comfortable levels. We also have buffers to slowing, even reversing, portfolio flows.”
After its mid-year review last year, Fitch Ratings affirmed the country’s credit ratings, keeping its outlook at “stable” on expectations that external debt ratios would be kept afloat by inflows from overseas Filipinos.
Fitch currently rated the Philippines’ long-term foreign currency Issuer Default Rating (IDR) at ‘BB’. Likewise, Fitch said the country’s long-term local currency IDR would be kept at ‘BB+’, while short-term foreign currency IDR would stay at ‘B’ and the country ceiling at ‘BB+’.
Fitch said the country’s “relatively strong” external financial position continued to support its current sovereign credit ratings, boosted largely by robust inflows from overseas workers.
However, Fitch said it still considers the country’s public finances fundamentally weak and that significant improvements in revenue base would have to be made to make the Philippines at par with similarly-rated countries.
“Ongoing current account surpluses, driven largely by overseas workers’ remittances, are contributing to a steady reduction in the country’s external debt ratios, and have allowed for a significant increase in official foreign exchange reserves,” said Fitch in its June 2008 report.
Fitch earlier said net capital flows were much weaker in 2008 because of the general reduction in global investors’ risk appetite amid slower growth in advanced economies as well as lingering uncertainty in credit markets.
Fitch noted that net portfolio equity inflows averaged about $2.4 billion annually between 2005 and 2007.–Des Ferriols, Philippine Star