Fitch upgrades Philippines rating outlook

by Lawrence Agcaoili (The Philippine Star), 12 Feb 2020

MANILA, Philippines — Fitch Ratings revised the outlook of the Philippines to positive from stable, signaling a better chance for the country to get another credit rating upgrade within the next 12 to 18 months.

Last Friday, the country bagged a credit rating upgrade to BBB+, or two notches above the minimum investment grade, from Tokyo-based Rating and Investment Information Inc. (R&I) as the Philippine government continues to ramp up efforts to attain the much coveted A credit rating by 2022.

Higher credit ratings translate to lower borrowing costs for government as well as the private sector.

Fitch cited the country’s adherence to a sound macroeconomic policy framework to high growth rates with moderate inflation, progress on fiscal reforms that should keep government debt within manageable levels as well as continued resilience in its external finances.

Fitch said it expects the Philippine gross domestic product (GDP) growth to accelerate to 6.4 percent this year and 6.5 percent next year after slowing down to an eight-year low of 5.9 percent last year from 6.2 percent in 2018 due to soft global markets amid the US-China trade war, the tightening cycle by the BSP in 2018, and the delayed passage of the 2019 national budget.

“On current projections, the Philippines will remain among the fastest-growing economies in the Asia-Pacific region in 2020-2021, well above the current BBB median,” it added.

The rating agency pointed out the economy would be supported by strong private consumption and rising public infrastructure investment as overseas remittance inflows and favorable job prospects alongside accommodative monetary policy should support continued private consumption demand.

However, Fitch said its macroeconomic projections are subject to downside risks from the evolving 2019 novel coronavirus (nCov) outbreak.

It added the Philippines is also vulnerable to natural disasters that could disrupt economic activity from time to time.

“It is still early to evaluate the effects of the outbreak, but the economy appears somewhat less vulnerable than regional peers as tourism accounts for less than three percent of GDP. In addition, the Philippines retains room in our view for monetary and fiscal easing to offset the potential short-term impact on growth,” it said.

According to Fitch, recent reforms including the New Central Bank Act and the Philippine Identification Act to strengthen institutional effectiveness, human capital and the business environment should lead to a further improvement in the Philippines’ structural metrics over time.

Fitch also expects the country’s fiscal profile to improve over the coming year, supported by continued progress on tax reforms including the passage of the passage of the Package 2+ of the comprehensive tax reform program that would lead to higher government revenues.

Furthermore, Fitch said the BSP’s Monetary Board still has more room for further easing after slashing interest rates by 100 basis points since May last year after delivering a rate cut last Feb. 6.

“We think there may still be room, although very limited, for further easing in light of the uncertainties over the growth outlook due to the coronavirus outbreak, and the likelihood inflation will stay within the central bank’s target range of two to four percent,” the debt watcher added.

Fitch Ratings and Korea-based NICE Investors Service assign the Philippines a rating of BBB, while Moody’s Investors Service assigns a rating of Baa2, one notch higher than the minimum investment grade.

On the other hand, S&P Global Ratings upgraded the country’s credit rating to BBB+ or a notch below the much coveted A rating in April last year.