DOF: Fitch off the mark when it rated PH

MANILA, Philippines–Fitch Ratings is still off the mark, said a senior government official this week, following the debt watcher’s decision to keep the Philippines’ rating at a minimum investment grade.

The debt watcher on Tuesday affirmed its BBB- rating with a stable outlook for the Philippines as the country’s low income levels and weak governance standards provided a counterbalance to recent economic gains.

“Looking ahead, we expect credit ratings to further improve as the country continues to register even better fundamentals on the back of expanded fiscal space and continued governance reforms,” Finance Secretary Cesar V. Purisima said in a statement.

Fitch’s grade for the Philippines is a notch below the assessments given by its peer rating firms Moody’s Investor Service and Standard & Poor’s (S&P).

In its assessment, Fitch noted that governance standards—industry speak for levels of corruption in government and the private sector—remained below that of similarly rated peers.

While the Aquino administration has made gains in fighting corruption, Fitch said the Philippines continues to score especially low on the World Bank’s Ease of Doing Business and Political Stability metrics. On average, Filipinos also earn $2,836 a year—well below the median score of $10,654 for countries with similar ratings.

The rating firm also noted weaknesses in the country’s public finances, even as the government works hard to bring down debt levels.

“Fitch’s assessment balances declining general government debt ratios against limited progress in widening the government revenue base,” the rating firm said.

Government debt would have to be reduced further to 34.4 percent of gross domestic product (GDP) in 2016 from an estimated 36.4 percent at the end of 2014. Also, the Philippines’ revenue at 15.1 percent of GDP at the end of 2014 was much lower than the ‘BBB’ median of 28.6 percent of GDP.

Purisima said the rating firm should focus instead on the country’s strengths.

“Robust growth and macroeconomic fundamentals built over the past four years affirm that the Philippine economic story is defined by sustainability, stability and resiliency,” he said.

Fitch said it expected the Philippine economy to grow at 6.3 percent in 2015 and 6.2 percent in 2016. The Philippines’ five-year real GDP growth was estimated to be 6.3 percent at the end of 2014, which is far above the “BBB” median of 3 percent.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said Fitch’s move was still a welcome development.

“The Philippine economy has reached a level of resiliency that is more comfortable than that of its peers as a result of accumulation of sufficient foreign-exchange buffer, sturdy financial system, and price stability,” he said in a statement.

External finances, which is the purview of the central bank, has been cited as a key strength. Fitch estimated the country was a net external creditor at 15.4 percent of GDP at end-2014, compared with the “BBB” median net external debtor position of 4.7 percent of GDP.