Fitch cites promise of stronger state spending, but flags political risk

THE PHILIPPINE ECONOMY can be expected to remain among the fastest-growing in Asia Pacific next year as aggressive spending plans by the government take off, Fitch Ratings said, although local political events may weigh on the country’s credit rating.

In its 2017 Outlook report for Asia Pacific, the debt watcher said the Philippines will be among the economies expected to lead the region’s growth, riding on domestic drivers at a time of uncertain global conditions.

Fitch forecasts a 5.5% median gross domestic product ( GDP) growth rate for 11 Asian emerging markets for 2017, the highest compared to estimates for emerging economies in the Middle East and Africa (3.5%), Latin America (2.9%), and Europe (2.8%).

Computed on a weighted average, emerging Asian economies are seen to grow by 6.4% in 2017 and 5.9% in 2018, coming from an expected 6.5% this year largely due to China’s slowdown.

“Fitch expects all countries in the region, except Mongolia, to exhibit higher GDP growth rates in 2017 than the medians of their respective rating categories. The growth outlook is particularly strong in Bangladesh, India and the Philippines,” the report read.

The Philippines currently holds a “BBB-” rating — the minimum investment grade — with a “positive” outlook from Fitch.

This is a notch lower than the “BBB” and “Baa2” ratings given by S& P Global Ratings and by Moody’s Investors Service, respectively.

Philippine GDP expanded by 7.1% during last quarter on a surge in investments, pulling the nine-month average to 7% that matched the top end of the government’s 6-7% growth goal for the entire 2016.

Global trade is expected to remain “bleak” in the year ahead in the face of an impending US pullout from the Trans- Pacific Partnership under Presidentelect Donald J. Trump, who assumes office next month.

A stronger dollar and higher US interest rates will also weigh on economies, especially those that rely heavily on external debt.

Domestic sources of growth like infrastructure boost and key reforms in Asian nations are seen to leave room for further expansion, the debt watcher added, noting that the Philippines is expected to get a lift from increased public spending.

Fitch expects a budget deficit equivalent to 3% of GDP next year, matching the Duterte government’s ceiling. This follows a 2.4%-of- GDP shortfall projected for 2016 that is below an upwardly revised 2.7% deficit cap, but bigger than 2015’s actual 0.9%.

Budget Secretary Benjamin E. Diokno said the Philippines will ramp up spending on infrastructure and social services over the next six years until 2022, in order to support growth of up to 8% yearly while also bringing down poverty and unemployment rates.

However, political events remain a key risk to the outlook.

“Fitch expects governance and domestic political developments to remain a rating driver in a number of EM Asia countries, including Malaysia, Philippines and Thailand, while security issues are likely to remain in focus in Bangladesh and Pakistan.” —