Fitch Ratings maintained the country’s credit rating at “BBB” with a “stable” outlook, citing sustainability of the economy’s robust growth while recognizing successful efforts to bring inflation back to target.
The rating is a notch above the minimum investment grade and the stable outlook indicates the absence of factors that can change the rating within the short term.
It came a few weeks after another international debt watcher, Standard & Poor’s, raised the Philippines’ credit rating to “BBB+”—two notches above investment grade and the country’s most credit-worthy status to date.
In a report released May 30, 2019, Fitch said it expected the Philippine economy to grow by 6.1 percent this year, or about the same as the 6.2 percent last year. It said strong domestic demand, both from public and private sectors, would allow the economy to hurdle external headwind such as a slowing Chinese economy and trade tensions between China and the United States.
“Growth will remain supported by strong private consumption and the government’s public investment program, which targets an increase in capital expenditure to about 7 percent of GDP by 2022 from 4.5 percent in 2017,” Fitch said.
At the same time, the debt watcher said that—after being temporarily elevated last year due mostly to supply side factors, including rising global oil prices—average inflation this year was expected to decelerate, citing the 3 percent recorded in April, which was well within the official full-year target of 2 to 4 percent.
Fitch took note of decisive monetary and nonmonetary measures that the government implemented to bring back inflation to within-target range.
“Overheating risks have subsided following the cumulative rate hikes of 175 basis points last year by the Bangko Sentral ng Pilipinas,” Fitch said. It added that, “inflation fell, facilitated by the passage of the rice tariffication law that lifts import restrictions, and credit growth has slowed significantly.”
Responding to the positive review, Finance Secretary Carlos Dominguez III said he was glad that Fitch has taken note of the Philippine economy’s resilience to both external and domestic headwinds.
“In part, the strength of the economy is credited to the decisive leadership of President Duterte who has demonstrated strong political will in implementing unpopular game-changing reforms to sustain the growth momentum and achieve financial inclusion for all,” he said.
The first package of the comprehensive tax reform program and the liberalization of the rice sector, among a long list of reforms implemented recently, are vital structural changes that will keep the economy on its high growth path, create more jobs and improve the living standards of Filipinos, he added.
Meanwhile, BSP Governor Benjamin Diokno said inflation has reverted to within-target level this year, following the implementation of decisive actions by the national government to address supply side issues, including decisive policy rate hikes by the BSP last year to anchor inflation expectations and contain any second-round effects.
The improved inflation outlook allowed the BSP to cut policy rates by 25 basis points and to lower the reserve requirement ratio in May.
Fitch also cited other factors for its decision to affirm the Philippines’ rating, including a stable banking sector, adequate foreign exchange reserves supported by sustained inflows in the form of remittances and business process outsourcing revenues, and a manageable debt situation. —DAXIM L. LUCAS