Gov’t moves to shore up PH credit rating after Fitch cuts outlook to ‘negative’

The Philippines’ economic managers on Tuesday moved to reassure investors that the government was moving to address perceived weaknesses in its coronavirus pandemic response that prompted Fitch Ratings to lower the country’s outlook from ‘stable’ to ‘negative’.

According to the international debt watcher, the country faces downside risks and “possible challenges associated with unwinding the exceptional policy response to the health crisis and restoring sound public finances as the pandemic recedes.”

At the same time, however, the ratings agency maintained the Philippines’ credit standing at ‘BBB,’ which is one notch above the minimum investment grade – a level it has held since December 2017.

“The rating kept at ‘BBB’ is a vote of confidence in the country’s economic and fiscal management despite the worst effects of the pandemic,” Socioeconomic Planning Secretary Karl Kendrick Chua told reporters.

But the downgraded outlook to “negative” from “stable” flagged the risks which the economic managers were already aware of, said Chua, who heads the state planning agency National Economic and Development Authority.

But ING Bank Manila senior economist Nicholas Mapa said the country’s overall growth trajectory was likely to be less vibrant compared to prepandemic levels as consumption remained constrained by high unemployment and investments were held back due to poor sentiment, despite the emergence of “some green shoots”.

“If trends continue we could see other ratings agencies follow suit in the next three months with a possible downgrade by year end if fiscal metrics worsen further,” he warned.

Credit ratings reflect the ability of a country to pay its obligations to its creditors. Higher ratings — especially those above investment grade — are able to borrow funds from overseas at lower rates which, in turn, translate to lower borrowing costs in their domestic economies.

The rating decision from Fitch came after international debt watcher S&P Global affirmed last May the Philippines’ “BBB+” rating with a “stable” outlook.

The country’s rating with S&P is one step higher than that of Fitch. The “stable” outlook indicates that the upside and downside risks to the rating are balanced and that the rating is unlikely to change within the short term.

Moody’s, on the other hand, assigns a “Baa2” rating to the Philippines, with a stable outlook. At this level, Moody’s rating is on par with Fitch’s’ “BBB” rating.

“Although the negative impact of the pandemic on the Philippines has been significant, this will only be temporary. In fact, the economy is already en route to a solid recovery path and is seen to have posted double-digit growth in the second quarter of this year amid the fast-track implementation of the vaccine rollout and economic recovery measures,” Finance Secretary Carlos Dominguez III said.

“We expect economic growth to range between 6 and 7 percent this year and an even higher 7 to 9 percent next year.”

“These upbeat growth projections take into account the continued relaxation of mobility restrictions, higher spending on COVID response and economic recovery programs, and the faster rollout of the mass vaccination program. We target to achieve ‘population protection’ by having 70 million Filipinos, or 100 percent of our adult population, inoculated by the end of this year,” Dominguez said.

Meanwhile, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said he expected the drag caused by COVID-19 on the Philippine economy to be “transitory.”

“The sharp economic contraction last year was caused primarily by strict containment measures to prevent the spread of the virus, save lives and increase the capacity of the healthcare system,” he said. “When the daily tally of cases showed a sustained decline and the government started to relax the mobility restrictions, the surveys showed the economy was able to generate jobs quickly. “

He vowed that the central bank would keep interest rates as low as possible for as long as possible to help the economy recover from its deepest slump since the end of World War II.

“We will continue to support the economy as needed, mindful of the negative consequences of premature disengagement of our response measures,” Diokno said.

Separately, a glowing report by Moody’s Analytics just last Monday which said the Philippines’ economic outlook was “looking up” took a U-turn on Tuesday as the think tank pointed out that the country remained Asia-Pacific’s cellar dweller in recovering lost output from the pandemic-induced recession.

“The Philippines is the laggard of the region with daily new COVID-19 cases still near record-high, continued quarantines in greater Manila, and only modest fiscal spending to support domestic spending and well-being,” Marisa Di Natale, head of global forecasting at Moody’s Analytics, said in a new report.

Moody’s Analytics estimates had shown the Philippines’ real gross domestic product (GDP) as of the first quarter was only over 90 percent of the pre-pandemic peak in 2019 — the lowest in the region. In contrast, GDP in China, Hong Kong, India, New Zealand, South Korea, Taiwan and Vietnam as of March were already above their pre-COVID-19 levels, while the rest of the Philippines’ Asian neighbors reverted to at least more than 95 percent of their 2019 economic outputs.

The think tank earlier projected the Philippines’ economic recovery would be the most sluggish in Asia-Pacific, with its return to pre-pandemic GDP level expected by the third quarter of 2022 — the last in the region.