Fitch sees Philippine GDP growth staying above 6%

THE PHILIPPINES can be expected to keep growing faster than six percent over the next five years, Fitch Ratings said, noting that strong economic activity and hefty dollar reserves will help maintain the country’s sound macroeconomic footing.

The international debt watcher expects the Philippines to grow by an average of 6.6% for the next five years, according to its third-quarter sovereign report published yesterday. The forecast is well above the 2.9% median growth for similarly rated economies under the “BBB” cluster.

Fitch affirmed on March 29 its “BBB-” rating — the minimum investment grade — with a “positive” outlook for the Philippines as it cited the country’s robust growth story backed by ample external buffers.

But it flagged relatively weak governance and the need to increase state revenues.

The Philippine economy expanded by 6.4% in the first quarter, slower than the 6.6% clocked in the last three months of 2016 in the absence of a one-time boost from election spending.

The credit rater expects gross domestic product ( GDP) to expand by 6.8% this year, which if realized would fall within the government’s 6.5-7.5% goal but would ease from the 6.9% actual growth posted in 2016.

The debt watcher also expects the country’s current account to reverse to a deficit over the next two years.

But it said this is not a concern since it simply reflected strong imports of capital goods “due to the authorities’ higher infrastructure spending plans.”

The Duterte government plans to spend over P8 trillion until 2022 on infrastructure under its “Build, Build, Build” initiative.

Fitch sees the current account at a deficit equivalent to 0.3% of GDP this year and 0.7% of GDP in 2018, reversing from 2016’s $800-million actual surplus that was equivalent to 0.2% of national output.

Analysts have said they see the country’s external position remaining nearly balanced this year, with the impact of an imports surge partly offset by rising inflows from remittances, tourism receipts and business process outsourcing revenues.

The Philippines also has a relatively better debt burden, with a lower ratio of government debt to GDP of 35.2% against a median of 40.2% among similarly rated peers.

At the same time, the credit rater warned that a weakening of external buffers could cause a rating downgrade for the Philippines, alongside “deteriorating” political stability in the face of escalating violence amid the current administration’s deadly war on drugs.

Across Asia and the Pacific, Fitch expects growth prospects to “remain robust” during the second semester, riding on a recovery of global demand, renewed stability of the Chinese economy and a “tame” market reaction to rate hikes in the United States.

On the other hand, geopolitical concerns and inward-looking policies — particularly in the United States — could dampen global prospects, the debt watcher said in its report. —