Fitch keeps country’s investment grade status
One of the three major international credit rating agencies kept the Philippines’ investment grade status as it expects sustained robust economic growth in the years ahead, driven in part by massive public infrastructure investments.
According to debt-watcher Fitch Ratings, the Philippines maintained its credit rating at “BBB” as the country’s economy, as measured by its gross domestic product (GDP), may grow by 6.6 percent in the next two years.
At the same time, Fitch sees the government keeping its liabilities manageable even as public investments grow. It noted that rising public expenditures, driven by infrastructure, are matched by efforts to raise revenues, such as tax reform.
As such, the budget deficit is projected to remain under control, thereby keeping the government’s outstanding debt in check.
“Growth prospects remain favorable, supported by strong domestic demand and increasing infrastructure investment,” Fitch said, adding that the government’s budget deficit is expected “to remain within manageable levels of around three percent of GDP in 2019 and 2020.”
Fitch said that government “revenues are expected to go alongside the increase in government expenditure.”
Consistent with this, Fitch expects the government’s outstanding debt as a percentage of gross domestic product to remain broadly stable at 37 percent by 2020.
The debt watcher has assigned a “stable” outlook on the country’s “BBB” rating, given the absence of factors seen to materially change the country’s credit profile over the short term.
The debt watcher said inflation is likely to go back to within the Bangko Sentral ng Pilipinas’ (BSP) target level of 2.0 percent to 4.0 percent by 2019 after being elevated in 2018.
Fitch recognized the effectiveness of the successive rate hikes implemented by the BSP and the measures done by the national government to ease constraints to rice supply.
From May to November this year, the BSP raised its key policy rates by a total of 175 basis points, a proactive move meant to ensure inflation goes back to within target range.
Also, Fitch recognized the stability of the country’s banking sector, which helps fund rising investment activities in the economy.
“Rating profiles [of banks] should remain steady backed by satisfactory risk controls, adequate loss-absorption buffers, and generally stable funding and liquidity profiles,” it said.
Welcoming Fitch’s decision are two of the country’s top economic officials.
Finance Secretary Carlos Dominguez III said: “Fitch’s forecast of strong growth in the years ahead affirms the soundness of the Duterte administration’s economic development strategy, which is to sustain high growth, accelerate poverty reduction, and achieve financial inclusion.”