Fitch retains negative outlook on Philippines

Global credit watcher Fitch Ratings on Friday retained its negative credit outlook on the Philippines due to uncertain economic recovery amid the COVID-19 crisis.

“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 in its report.

“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,” the credit watcher said.

Risk factors cited by Fitch Ratings also include the government’s COVID-19 response and the challenges arising from the unwinding of stimulus measures.

“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,” it said.

Fitch Ratings, likewise, cited the sharp rise in the country’s debt-to-gross domestic product (GDP) from pre-COVID pandemic levels.

In a separate statement, Finance Secretary Carlos Dominguez III said that the government is “mindful not to pass on to future generations unsustainable debt,” noting that the “government has accommodated the huge cost of COVID-19 crisis response to help vulnerable sectors survive and recover from the crisis.”

“Estimated to have reached around 54% 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,” Dominguez said.

The Finance chief added that the rise in debt because of the pandemic did not prevent the country from having a favorable debt structure and ample access to low-cost funding.

‘BBB’ rating

Despite keeping a negative credit outlook, the New York-based credit watcher affirmed the country’s credit rating of “BBB,” a notch above the minimum investment grade.

The Philippines maintained the same credit rating from Fitch Ratings throughout the pandemic.

In affirming the investment-grade rating, the credit watcher said that the country’s recovery “should be supported by a pick-up in vaccination rates (92% 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.”

“The fiscal and monetary policy response, strong infrastructure spending and resilient remittances and exports is also boosting the recovery. Remittances rose by 5.1% yoy in 2021, while exports were up by 15% yoy, after contracting by 8% in 2020,” it said.

The rating affirmation comes after the Philippine economy expanded by 7.7% in the fourth quarter of 2021 on the back of renewed growth in consumption and investments.

The growth in the last quarter of last year brought full-year GDP growth to 5.6%, surpassing the government’s target range of 5% to 5.5% and reversing the recession in 2020.

“We forecast GDP growth to recover to 6.9% in 2022 and 7.0% in 2023, from 5.6% in 2021, before moderating towards 6.0% to 6.5%,” Fitch Ratings said.

Dominguez said that “the deep bench of technocrats who have helped steer economic policies will be staying beyond June 2022 and would help ensure the continued pursuit of structural reforms.  These, in turn, will help the Philippines sail through its next stage of economic development as we expect the Philippines to transition from lower-middle-income to upper-middle-income status this year.”

For his part, Bangko Sentral ng Pilipinas Governor Benjamin 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 2.0 to 4.0 percent this year up to 2024, which will provide an enabling environment for consumption and investments,” the BSP chief added.  —LBG, GMA News