International debt watcher Fitch Ratings has revised its credit outlook for the Philippines to “positive” from “stable,” signaling its intention to grant an upgrade within the next 12 to 18 months.
This was in recognition of improved governance standards under the Aquino administration, which have led to stronger growth and a significant improvement in the business climate.
However, Fitch’s more optimistic view may come to naught if the country deviates from its current track.
Fitch said in a statement it would withhold a credit rating upgrade if it sees a “deterioration in governance standards or a reversal in reforms that were implemented under the Aquino administration.”
The rating firm currently rates the Philippines at its minimum investment grade, while Moody’s Investor Service and Standard & Poor’s have similar credit scores for the country at two notches above “junk.”
Sovereign credit ratings, which are indications of the government’s ability to repay obligations, are used by investors as proxies for the strength and stability of the local economy.
Fitch said a sustained period of excessive credit growth, which would inevitably result in financial instability, would also make the firm think twice about granting an upgrade.
In a separate report, American research firm Capital Economics said many of the ills that held the country back were reversed under the current administration.
“There is an obvious concern that presidential elections next year, (from which [President Aquino] is constitutionally barred from standing in), could see the election of a less-reform minded successor,” the firm said.
“Just as Mr. Aquino quickly improved the Philippines’ image with global investors, the wrong sort of president could sour it,” it said.
Prior to 2010, the Philippines was “arguably one of the most badly governed countries in the region,” the firm said.
Military coup attempts were commonplace, the most recent of which in 2006. The economy “lurched” from crisis to crisis, corruption was rife, and the business environment was appalling, Capital Economics said.
In the decade before 2010, GDP growth was below 5 percent a year.
The Philippines has turned a corner, the firm said. Since 2010, the economic expansion averaged above 6 percent every year, making the Philippines one of the few Southeast Asian countries that saw growth accelerate this decade.
Coup attempts have died down, while large-scale corruption scandals have fallen sharply. “It is notable that the Philippines has climbed the rankings of various international league tables that aim to measure competitiveness, the business environment, and corruption levels,” the firm said.