Fitch keeps PH credit rating at minimum investment grade

Debt watcher Fitch Ratings on Friday said it kept the Philippines’ credit rating at minimum investment grade, even as the government said the country continued to be “underrated” amid strong fundamentals.

In a statement, Fitch said it affirmed the Philippines’ sovereign ratings at BBB- on the back of sustained current account surpluses, declining government debt and budget deficit, favorable macroeconomic growth performance during the last five years, ample liquidity in the banking sector amid strong capitalization and rising loan-loss reserves, as well as stronger governance standards under the Aquino administration.

Fitch also expects the Philippine economy to grow by about 6 percent in 2016 and 2017.

However, “the Philippines’ low average income and level of development is a credit weakness,” Fitch said.

“The Philippines’ GDP [gross domestic product] per capita in 2015 was $2,860, which is lower than the ‘BBB’ median of $9,253. This measure however does not capture the significant support to living standards provided by overseas Filipino remittances,” it said.

Moving forward, Fitch said it was closely monitoring if “improvement in governance standards can be sustained following a change in government after elections.”

Fitch is also looking forward to “further broadening of the government’s revenue base that lends greater stability to government finances” and also “continued strong growth without the emergence of imbalances,” it said.

While its rating outlooks remained “positive,” Fitch said ratings could revert to “stable” if the following happens: deterioration in governance standards and/or reversal in reforms implemented under the Aquino administration could be credit negative; and instability in the financial system, possibly triggered by a sustained period of excessive credit growth.

A positive outlook indicates a possible upgrade in credit rating within the next 12 to 18 months.

Fitch’s rating of BBB- for the Philippines stayed the same since March 2013.

In a statement, Finance Secretary Cesar V. Purisima said this latest announcement by Fitch again affirmed “President Aquino’s commitment to good governance.”

However, “we believe that we are still underrated by at least a notch” as “the Philippines continues to outshine similarly rated peer sovereigns amid global volatility” and “outperform with better fundamentals and robust domestic drivers of growth,” Purisima said.

The government’s Investor Relations Office (IRO) noted that Fitch’s credit rating for the Philippines was “the lowest among scores assigned to the Philippines by a host of credit rating agencies,” hence “reflects significant discrepancy with how financial markets actually assess the credit worthiness of the country.”

The Philippines had been assigned a credit rating of Baa2 by Moody’s Investors Service, as well as BBB by Standard & Poor’s, NICE Ratings and R&I—a notch higher than Fitch’s rating.

Japan Credit Rating Agency, meanwhile, had rated the Philippines two notches higher at BBB+.

“Financial markets believe the Philippines is much less of a credit risk compared with other countries enjoying higher credit ratings, with spreads on its credit default swap (CDS) being much tighter,” the IRO said, citing that CDS spread on the Philippines’ five-year bonds was at 116.35 basis points (bps) last April 7, or better than Colombia’s 264.87 bps, Mexico’s 182.34 bps and Thailand’s 145 bps—countries whose credit ratings are higher.

“The Philippines’ debt burden is also more manageable compared with countries with higher credit ratings. By the close of 2015, the Philippines’ general government debt as a percentage of GDP settled at 36.8 percent, better than Colombia’s 44.4 percent, Panama’s 40.6 percent, Mexico’s 44.6 percent, Spain’s 99.1 percent and Italy’s 133.3 percent,” the IRO added.

For his part, Bangko Sentral ng Pilipinas (BSP) Gov. Amando M. Tetangco Jr. said “the Philippines is expected to continue enjoying an inflation environment and a financial system supportive of robust economic growth.”

“There are many pockets of policy continuity in government that will help achieve long-term sustainability of the country’s economic gains. The BSP, which enjoys policy independence and fiscal autonomy from the national government as enshrined in law, has put in place sound frameworks for monetary policy and bank supervision,” Tetangco said.

“Guided by these frameworks, and together with its flexibility in adjusting policy settings to deal with modern-day challenges, the BSP will continue to help provide an enabling environment for robust and stable economic growth,” the BSP chief added.