Fitch affirms investment grade rating for Philippines

MANILA, Philippines - Fitch Ratings has kept its investment-grade rating for the Philippines amid the country’s robust economic performance and healthy external finances.

The global debt watcher, in a statement, also said it has maintained a “stable” outlook on the country’s ‘BBB-’ rating.

 “The Philippine economy has reached a level of resiliency that is more comfortable than that of its peers as a result of accumulation of sufficient foreign exchange buffer, sturdy financial system, and price stability,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said.

“All of these are anchored on prudent monetary policy and effective supervision of banks and other financial institutions,” he added.

Fitch pointed out that the steady inflows of remittances from overseas Filipino workers and the continuous expansion of the business process outsourcing industry remain supportive of economic growth.

The firm has estimated economic growth to accelerate to 6.3 percent this year but ease to 6.2 percent in 2016. The Philippine economy expanded 6.1 percent last year, short of the government’s 6.5- to 7.5-percent target but still the second fastest in Asia during the period.

“External finances (is) a key credit strength. Sustained current account surpluses since 2003 have supported the build-up in FX (foreign exchange) reserves and turned the country into a net external creditor,” the debt watcher stressed.

The country’s public finances, meanwhile, has been a “neutral” factor on the credit rating action, Fitch said, as general government debt declines but the revenue base remains limited.

Fitch has forecast government debt to fall to 34.4 percent of gross domestic product (GDP) in 2016 from an estimated 36.4 percent in end-2014. However, it stressed the tendency of the government to underspend has kept fiscal deficits low, adding revenue and grants were only 15.1 percent of the GDP in end-2014 which is below the median of 28.6 percent for other countries rated ‘BBB’.

But the debt watcher has stressed that governance standards have remained weak and per capita income continue to be low as compared to other peers rated ‘BBB’.

“Governance standards have strengthened under the Aquino administration since 2010. However, the Philippines continues to score especially low on the World Bank’s Ease of Doing Business and Political Stability metrics, at levels that are far below the ‘BBB’ median,” Fitch said.

“The Philippines’ per capital income was low at $2,836 in 2014 compared with the ‘BBB’ median of $10,654,” the credit rater added.

Fitch also said that credit growth in the country remains strong, with private sector borrowings averaging about 16 percent from 2010 until 2014.

“The authorities have stepped up their monitoring of risks around the real-estate sector. The abundance in liquidity has not led to evidence of overheating but it is a risk that bears monitoring over the medium-term,” the debt watcher said.

Fitch said an upgrade in the credit rating may be in the offing if there are further improvements in governance standards, leading to higher investments. At the same time, a strong economic growth and broadening of the general government revenue base may support a positive rating action in the future.

Nonetheless, the debt watcher cautioned a sustained period of overheating that will lead to the instability in the financial system and a worsening in governance standards or reversal in reforms may result in a downgrade in the country’s credit rating.

 “Consistently robust growth and macroeconomic fundamentals built over the past four years affirm that the Philippine economic story is defined by sustainability, stability, and resiliency,” Finance Secretary Cesar Purisima said.

 “Looking ahead, we expect credit ratings to further improve as the country continues to register even better fundamentals on the back of expanded fiscal space and continued governance reforms,” he added.

The Philippines is rated by the other two global debt watchers a notch above the minimum investment grade, a level higher than the rating given by Fitch.

Moody’s Investors Service in December awarded the country a Baa2 with a stable outlook, while Standard & Poor’s Ratings Services gave the country a BBB with a stable in outlook in May last year.