Fitch: Low incomes, public spending are risks to PHL investment grade rating

Debt watcher Fitch Ratings said low incomes and poor public spending remain the downside risks for the Philippines to maintain an investment grade rating, noting these items lag compared to the rapid economic growth so far shown by the Southeast Asian nation.

 

In its Asia-Pacific Sovereign Credit Overview in July, the debt-watcher affirmed the Philippines' long-term foreign and local currency issuer default ratings at 'BBB-' and 'BBB,' respectively, with "Stable" outlooks.

 

But the ratings seemed tarnished by an income disparity against those of peer economies.

 

"Low incomes and poor governance, compared with ‘BBB’ range peers, are key sovereign weaknesses," Fitch said in the report.

 

Bank of the Philippine Islands lead economist Emilio Neri Jr. said the Philippines is stuck between $2,500 and $3,000 per capita gross domestic product (GDP) against the $4,000 to $5,000 per capita GDP of other BBB-rated economies.

 

"Fitch may not be convinced that we can grow our per capita GDP in the near term," he said.

 

In March 2013, Fitch gave the Philippines its first investment grade rating. Fitch said the Philippines' ratings are supported by a resilient economy, a credible monetary policy framework and a large net external creditor position.

 

"We need to grow by 8 to 10 percent in real GDP in order for the income levels to catch up," Neri noted.

 

In the first quarter of 2014, the Philippine Statistics Authority (PSA) reported that the GDP grew by 5.7 percent in January to March, compared with 7.7 percent a year earlier.

 

In 2013, the full-year GDP was at 7.2 percent compared with the 6.8 percent expansion in 2012.

 

Fitch said a steady inflow of overseas Filipinos’ remittances, growth in the business process outsourcing industry and low interest rates continue to buoy growth.

 

But the country will not be able to achieve faster growth because there are no structural reforms being done, Neri said.

 

"There are no necessary structural reforms like liberalization, fixing of investment rules which are strict on foreign investors and more important, infrastructure," he said.

 

"We have the fiscal savings, domestic interest rates at historic lows, but the government is unable to take advantage of these for reforms," he added.

 

Bangko Sentral ng Pilipinas has kept interest rates at record lows since October 2012, with overnight borrowing at 3.5 percent and overnight lending at 5.5 percent. – Danessa O. Rivera/VS, GMA News