For ratings upgrade, PH needs to sustain reforms, says Fitch
THE PHILIPPINES could further improve its credit rating next year if President Aquino’s successor would continue the economic reforms introduced by the present administration despite the projected slower economic growth in the region, according to Fitch Ratings.
In a report this week titled “2016 Outlook: Emerging Asia Sovereigns,” Fitch said the Philippines’ positive outlook was “driven by a steady strengthening in the country’s structural fundamentals, improvements captured in international measures of governance standards and international competitiveness as reflected in the Philippines’ strong macroeconomic performance.”
“Strong growth, a structural current account surplus and ongoing fiscal policy discipline are driving a steady improvement in the sovereign’s balance sheet,” it added.
For Fitch, “[i]ncreased confidence that these trends will be sustained under the next administration after the 2016 presidential elections would support the case for an upgrade.”
Last September, Fitch upgraded its outlook on the Philippines from “stable” to “positive,” which means it would most likely grant an upgrade within the next 12 to 18 months. The Philippines’ current rating from Fitch is ‘BBB-,’ its minimum investment grade.
In the report, Fitch said “mounting pressures” are seen to test the resilience as well as the coherence of policy responses in the region.
“China’s slowdown, an expected rise in US rates, dollar strength, still sluggish global trade growth, and lower commodity prices pose a challenging outlook for emerging Asian economies in 2016 to varying degrees,” Fitch said.
While outlooks across emerging Asian economies remain stable, Fitch said that “[f]or countries that are—or will be—most affected, such as Indonesia and Malaysia, the credibility and coherence of their policy responses will prove vital in defending their sovereign credit profiles.”
Fitch sees growth in emerging Asia, including China and India, to slow to 6.3 percent next year from the 6.5-percent growth forecast this year, “driven almost entirely by a projected slowdown in China.” It also expects China’s growth to further ease to 6.3 percent next year and 6 percent in 2017 from the projected 6.8 percent this year “as the economy works through a structural adjustment to a more sustainable growth pattern.”
Still, Fitch said it thought “China has the financial and administrative resources to avoid a disorderly adjustment and a sharp slowdown to near-zero growth.”
Fitch is nonetheless confident that next year’s slowdown would not be akin to the 1997 Asian financial crisis.
“Emerging Asia’s external balance sheets are generally stronger than in 1996, the year before the Asian financial crisis broke. Sovereigns are generally much less reliant on foreign-currency financing, and many countries now have more flexible exchange-rate regimes in place of the more prevalent use of explicit pegs before 1997. This gives authorities greater scope to let exchange rates act as a buffer today compared with the mid-1990s,” it said.