Gov’t urged to protect, continue reforms

The Philippines may face credit rating downgrades if reforms that are the foundation of the country’s recent economic success are reversed by the new government that comes to power in 2016.

Fitch Ratings, which has the least bullish assessment of the Philippines among major international credit ratings agencies, said the country’s future leaders should protect reforms of the last five years or risk eroding the economy’s standing in the international community.

“The country continues to score lower on income and governance standards, compared with (similarly rated) countries,” Fitch said on Tuesday in a report on Asia-Pacific sovereigns.

Since 2010, the Philippines’ sovereign debt rating with Fitch has risen from speculative or “junk” to “investment grade,” a result mainly of higher tax revenues, improved transparency and stronger economic growth.

At BBB-, the minimum investment grade, Fitch’s rating is behind the two notches-above-junk ratings given by both Moody’s Investor Service and Standard & Poor’s.

Sustained healthy gross domestic product (GDP) growth rates, which would help narrow the country’s income gap, would help the Philippines secure a higher rating, Fitch said.

The government should also continue improving tax collections, which would give the state more cash to spend on infrastructure and social welfare projects aimed at reducing poverty, it added.

Backsliding from these reforms, however, would bring the country back to junk status, Fitch said, citing “a deterioration in governance standards and reversal in reforms after 2016” as one of the Philippines’ “negative sensitivities.”

Fitch currently has a “stable” outlook for the country, which means its current rating would stay the same for at least a year.

In its report, Fitch said it had kept its growth outlook for the Philippine economy at 6.3 percent for 2015 and 6.2 percent for 2016. Other BBB-rated countries have an average growth of just 3.5 percent annually.

The country’s strength is anchored on high growth rates, large net external creditor position and manageable levels of inflation.

“These strengths help offset the low per-capita incomes and the country’s long-standing structural weaknesses, particularly with respect to governance and business climate, and national government revenue base that remains narrow,” Fitch said.