Fitch sees 2014-2015 slowdown

PHILIPPINE economic growth could slow this year and the next as it moves closer to its trend path, Fitch Ratings yesterday said, with low incomes, muted revenues and political uncertainties holding back the country’s potential.
Slower growth of 6.5% is “likely sustainable,” according to Fitch Ratings. 

Andrew Colquhoun, Fitch’s head for Asia-Pacific sovereigns, said in a teleconference that the debt watcher saw Philippine economic growth hitting 6.5% this year — down from 2013’s above-target 7.2% — and slowing further to 6.2% in 2015.

Last March, in affirming its “BBB” rating and “stable” outlook for the country, Fitch said growth this year and next could average at 6.5%, from a historical trend of around 5%.

“We think this would be the economy’s likely sustainable growth rate,” Mr. Colquhoun said.

The government is targeting gross domestic product (GDP) growth of 6.5-7.5% this year and 7-8% next year. The 7.2% growth in 2013 surpassed the official 6-7% target.

Mr. Colquhoun said the country’s current rating was supported by its “resilient economy, credible monetary policy framework, and a large net external creditor position.”

“A steady inflow of overseas Filipinos’ remittances, growth in the business process outsourcing industry, and low interest rates, continue to buoy growth,” he added.

He noted a number of key weaknesses, however, hence the decision to just affirm the Philippines’ rating and outlook.

In contrast, Moody’s Investors Service rates the country at the lowest investment grade with a “positive” outlook, and Standard & Poor’s last May raised its rating a notch above the minimum investment grade with a “stable” outlook.

“I think the current credit rating of the Philippines is high relative to some of its peers, given its structural characteristics,” Mr. Colquhoun said.

“The Philippines still has a low revenue take, low income per capita GDP, and, despite improvements, still some weaknesses relative to similarly-rated peers in terms of governance.”

He said the upcoming presidential elections also pose some uncertainty.

“We acknowledge the efforts of the Aquino administration to strengthen governance. The question would be what would happen when the next government comes in,” he noted.

“I guess we’re not sufficiently comfortable to say that the reforms being implemented right now are sufficiently entrenched, in such a way that these will be sustained by whoever comes in by 2016,” Mr. Colquhoun explained.

Some developments that could give Fitch a reason to raise the Philippines’ credit rating would be, among others, a strengthened business climate, which would lead to strong growth prospects and successful efforts to widen the revenue base.

“We’d also like to see sustained GDP growth without the emergence of imbalances, like rising leverage, macroprudential risks,”he said.

“A key positive development in the Philippines’ credit profile is the progressive reduction in public debt ratios and the strengthening of its public balance sheet. Should that continue, it would also be positive for the country’s rating.”

Downside risks, meanwhile, are “a period of economic overheating or financial instability and a deterioration in governance standards.” — Bettina Faye V. Roc, Businessworld