No ratings upgrade yet for PH from Fitch

Fitch Ratings has kept the Philippines’ credit rating at a notch below investment grade, citing favorable developments on the economic and political fronts.

In a statement Tuesday night, Fitch said the Philippines’ previous foreign-currency issuer default rating (IDR) of BB+ still remained appropriate (foreign-currency IDR indicates the ability to service foreign currency-denominated obligations and thus guide foreign investors and creditors).

The outlook on this rating is “stable,” which indicates the rating may stay the same for about a year. Consequently, the chances of the Philippines getting an investment grade within a year have been dimmed. Government officials have been pitching for an investment grade for the Philippines, which lags behind its neighbors in terms of cornering foreign direct investments.

Fitch lauded the governance reforms being implemented by the Aquino administration. These reforms, it said, would indeed help improve the country’s investment climate. Nonetheless, Fitch said it would take some time before the economic benefits of the governance reforms would be felt significantly.

“The Aquino administration’s reform agenda have focused on tackling perceived shortcomings in governance and poverty and have the potential to address long-standing structural weaknesses. However, it will likely take time to feed through to the sovereign credit profile,” said Philip McNicholas, a director for the Asia-Pacific Sovereign Ratings group of Fitch.

Fitch recognized the country’s declining debt burden, saying this was favorable for the country’s credit standing. The Philippine government’s outstanding debt stands at just about 50 percent of the country’s gross domestic product, much lower than the peak of more than 80 percent in 2004.

The credit-rating firm likewise cited the country’s rising foreign exchange reserves, which gave comfort about the government’s ability to service debts to foreign creditors.

The Bangko Sentral ng Pilipinas expects the gross international reserves (GIR) to hit a record high $78 billion by the end of this year, boosted mainly by remittances, foreign investments in business process outsourcing industry and tourism receipts.

The ability to sustain a respectable growth despite problems in the global economy was another strength of the Philippines, Fitch said. Philippine GDP grew 6.4 percent in the first quarter, the second-fastest growth rate in Asia during the period after China’s 8.1 percent.

Fitch, however, said the positive impact of a declining debt burden, rising reserves and sustained growth on the country’s credit-worthiness was being countered by several factors, including an uncompetitive business environment and low household incomes compared with those in other emerging markets. It also said there was room for faster growth in the government’s revenue collection.