Fitch worried by constraints to debt reduction efforts

The reduction of debt levels in Asia-Pacific countries will be limited in the next few years and the trajectory of debt is a concern for prospects of countries like the Philippines, according to Fitch Ratings.

In a nonrating related commentary, the global debt watcher said the expected limited rebuilding of fiscal buffers in the region would—on average—reflect a relatively stable path of the debt ratio.

“A forecast return to high growth over the next several years will support the stabilization of debt ratios in many developed- and emerging-market sovereigns, but is likely not sufficient for sharp debt reduction, which would require faster-than-forecast deficit reduction,” Fitch Ratings said.

“Debt trajectory uncertainties [are] a factor in the Philippines, in combination with potential medium-term growth challenges,” the rater said.

Last February, Fitch Ratings affirmed the Philippines’ credit rating of “BBB,” which is a notch above minimum investment grade, citing economic gains that demonstrate sustained recovery from the COVID-19 crisis.

The Bangko Sentral ng Pilipinas (BSP) noted that the Philippines has maintained the same rating from Fitch—as with the ratings of other debt watchers—throughout the pandemic, despite a wave of rating downgrades for many other countries during the same period.

The BSP also said the affirmation followed the Philippine government’s announcement in last January that the domestic economy expanded by 7.7 percent in the fourth quarter of 2021 on the back of renewed growth in consumption and investments.

Even then, Fitch Ratings also kept its outlook on the Philippines’ BBB rating at “negative.”

—Ronnel W. Domingo