MANILA, Philippines – Fitch Ratings, an American credit rating agency, has provided an optimistic view of the Philippine economy, changing its outlook on the country from “stable” to “positive.”
In a statement issued on Tuesday, Fitch said that the change was brought about by “sound macroeconomic policy frameworks” in the country, which is expected to translate to a higher growth rate.
As of now, the Philippines maintains its BBB+ rating — a notch away from the A territory — which would translate to lower borrowing costs on loans for the domestic market.
“The Outlook revision reflects Fitch’s expectations of continued adherence to a sound macroeconomic policy framework that will support high growth rates with moderate inflation, progress on fiscal reforms that should keep government debt within manageable levels and continued resilience in its external finances,” Fitch said.
“Fitch expects growth to accelerate to 6.4% and 6.5% in 2020 and 2021, respectively, after slowing to 5.9% in 2019, supported by strong private consumption and rising public infrastructure investment […] On current projections, the Philippines will remain among the fastest-growing economies in the Asia-Pacific region in 2020-2021, well above the current ‘BBB’ median,” the statement added.
According to Fitch, the economy will be spurred by the controversial tax reform laws, which have removed the imposition of income taxes on low-to-medium-earning workers and instead placed additional excise taxes on oil products and sin products.
“Fitch expects the Philippines’ fiscal profile to improve over the coming year, supported by continued progress on tax reforms, which should lead to higher government revenues. Package 2+ was passed in January 2019, raising excise taxes on alcohol, heated tobacco, and vapor products,” Fitch explained.
“We expect revenue gains from this package and tax package 1A, passed in 2017, to raise central government revenues to about 16.9% of GDP from an estimated 16.7% in 2019,” it added.
Last May 2019, another global debt watcher in Standard & Poor’s gave the Philippines a BBB+ rating, which is currently the highest in the country’s history. S&P also gave the country a stable outlook, based on the supposedly strong momentum of the Philippine economy.
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However, Fitch Ratings also warned of possible risks to the economy, including the 2019 novel coronavirus (nCoV) which may slow down production and spending by private individuals.
As of now, only three cases of nCoV have been confirmed in the Philippines, but patients under investigation are now at 382.
Aside from that, Fitch also noted the country’s vulnerability to natural disasters, being on the typhoon belt of the Pacific Ocean and the Pacific Ring of Fire of earthquakes and volcanoes.
Just this January, Taal Volcano erupted, disrupting livelihood, tourism, and businesses in Southern Luzon, especially Batangas and Cavite provinces.
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“Our macroeconomic projections are subject to downside risks, however, from the evolving coronavirus outbreak. Moreover, the Philippines is vulnerable to natural disasters that can disrupt economic activity from time to time,” Fitch noted.
“It is still early to evaluate the effects of the outbreak, but the economy appears somewhat less vulnerable than regional peers as tourism accounts for less than 3% of GDP. In addition, the Philippines retains room in our view for monetary and fiscal easing to offset the potential short-term impact on growth,” it added.
/atm