PH should get more investments to merit credit rating upgrade – Fitch Ratings

MANILA, Philippines — Fitch Ratings said the Philippines should attract more investments and accelerate growth of the overall economy to get another credit-rating lift and hit investment grade.

Andrew Colquhoun, Fitch head for Asia Pacific sovereigns, said the country could get another credit-rating upgrade within the short term, given favorable developments, such as the improving fiscal situation of the government, benign inflation, and relatively stable banking sector.

However, he said the outlook on the latest credit rating for the Philippines has been “stable” rather than “positive” because the country should still show it could further speed up growth of its economy, largely through investments, so that the average income of Filipinos eventually match those of other emerging economies.

A “stable” outlook shows the latest credit rating is likely to be maintained within 12 to 18 months unless significant improvements in the requirement macroeconomic fundamentals are achieved.

On the other hand, a “positive” outlook signifies a better chance for an economy to get a credit rating upgrade with the short term.

Just last month, Fitch raised the country’s credit rating from “BB” to “BB+”. This is tantamount to an increase from two notches to just one notch below investment grade.

The government’s economic officials are hoping for another credit rating upgrade within the short term, saying the country deserves it given favorable fundamentals and capability to service maturing obligations. They said an investment grade would help the country earn more respect, and perhaps investments, among the international creditor and investor community.

Government officials opined that the Philippines’ latest credit rating, although already an improvement, was still below what the country deserved. They cited the country’s rising reserves of foreign currencies, among others, which show enhanced capability to settle maturing debts to foreign bond holders and creditors.

Some countries, such as Indonesia, have the same fundamentals as those of the Philippines but have better credit standing, according to them. Indonesia also has a BB+ rating from Fitch, but enjoys a “positive” outlook.

In response, Colquhoun said the country should generate more investments and accelerate growth of the economy if it wanted another credit rating upgrade.

He cited the country’s average gross domestic product growth of 4.9 percent over the past five years, which was still lower than Indonesia’s 5.7 percent.

Colquhoun added that the investment-to-GDP ratio of the Philippines stood at only 16 percent, while that of Indonesia’s has been at 30 percent.

Moreover, per capita income in Indonesia has reached the $3,000 level, while that for the Philippines has remained at $2,000.

Nonetheless, Colquhoun has acknowledged the Philippine government’s improving fiscal situation, which is one of the important factors affecting credit ratings.

Fitch expects the Philippine government’s budget deficit to stay this year within the target ceiling of 3.2 percent of gross domestic product.