INTERNATIONAL credit watcher Fitch Ratings announced on Friday that it is keeping its investment-grade rating of the Philippines steady amid the lingering disruptions caused by the pandemic on the economy. Fitch’s outlook on the affirmed rating, however, was kept “negative” as it cited the continuing risk that the satisfactory economic indicators may decline within the policy horizon of a year to 18 months.
Reacting to the development, economic managers issued separate statements defending the Philippine economy’s performance, with Finance Secretary Carlos Dominguez noting the country’s debt level remained manageable in 2021 and is seen to remain so this year.
Diokno : “Besides improvement in the Covid situation amid rising vaccination rates, we also see that rising credit activities and a favorable inflation outlook will support growth moving forward.”
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, meanwhile, said price and financial stability will help sustain Philippine economic recovery and growth.
Fitch Ratings affirmed the Philippines’ Long-Term Foreign-Currency Issuer Default Rating (IDR) at “BBB”, citing the country’s economic gains and sustained recovery from the pandemic.
The credit watcher forecasts the country’s gross domestic product (GDP) growth to recover to 6.9 percent this year and rise further to 7 percent in 2023. Last year, the country’s growth numbers were at 5.6 percent.
“This should be supported by a pick-up in vaccination rates [92 percent of 54 million target individuals had been fully vaccinated as of December 2021], falling Covid-19 infection numbers, normalized economic activity—particularly in services—after tight containment measures in 2020 and part of 2021,” Fitch Ratings said.
“The fiscal and monetary policy response, strong infrastructure spending and resilient remittances and exports is also boosting the recovery,” it added.
The Philippines has maintained the same rating from Fitch, as with the ratings of other debt watchers, throughout the pandemic, despite several downgrades for other countries during the same period.
However, Fitch assigned a negative outlook to the rating. A negative outlook means the rating could be subject to a downgrade if economic indicators in the country start to deteriorate in the policy horizon of about 12 to 18 months.
“The negative outlook reflects uncertainty about medium-term growth prospects as well as possible challenges in unwinding the policy response to the health crisis and bringing government debt on a firm downward path,” Fitch Ratings said.
Among the flagged indicators in the country are lagging per capita income and governance, weak government revenue mobilization and sharp rise in the government’s debt-to-GDP ratio.
Fitch also said there are downside risks to their positive growth forecast scenario for the country.
“Downside risks to the economic recovery stem from potential pandemic-related scarring effects on medium-term growth prospects and the risk of further Covid-19 waves from new variants,” Fitch said.
“Presidential elections scheduled for May 2022 also create uncertainty around the post-election fiscal and economic strategy, although we assume broad policy continuity will be maintained given the Philippines’ record of a generally sound policy framework,” it added.
The ratings agency added that these factors could lead to a negative rating action: reduced confidence in a return to strong medium-term growth, failure to reduce the government debt-to-GDP ratio and the deterioration in external indicators, including foreign-currency reserves, current account deficit and net external debt.
Meanwhile, a positive rating action from Fitch could result from sustained broadening of the government’s revenue base and strengthening of governance standards.
Economic managers defend PHL
In a separate statement, Dominguez said the country’s debt level remained manageable in 2021.
“The government has accommodated the huge cost of Covid-19 crisis response to help vulnerable sectors survive and recover from the crisis…. We are also mindful not to pass on to future generations unsustainable debt,” Dominguez said.
“Estimated to have reached around 54 percent of GDP in 2021, the general government’s debt remains manageable, and we expect this to remain at around the same level this year and the next,” he added.
For his part, Diokno said price and financial stability will help sustain Philippine economic recovery and growth.
“Besides improvement in the Covid situation amid rising vaccination rates, we also see that rising credit activities and a favorable inflation outlook will support growth moving forward,” Diokno said.
“The Philippine banking system has kept the impact of the crisis manageable. Philippine banks continue to serve the rising demand for credit. We also expect inflation to stay well within the target range of 2 to 4 percent this year up to 2024, which will provide an enabling environment for consumption and investments,” he added.
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