Fitch Rating Affirms Investment Grade Rating On Philippines

Fitch Ratings on Friday affirmed anew it’s ‘BBB-‘ ratings on the Philippines, seven months after changing the ratings outlook to positive, citing the country’s strong external finances and improvement in its fiscal situation among others.

In a statement, the debt rater said it is also affirming the country’s ‘BBB’ local currency issuer default rating, the ‘BBB’ senior unsecured foreign-currency bond rating, ‘BBB-‘ local-currency bond rating, ‘BBB’ Country Ceiling rating, and the ‘F3’ Short-Term Foreign-Currency IDR rating.

This after the credit rater noted the sustained surplus of the country’s current account, which has been achieved since 2003, due in part to the resiliency of inflows from Overseas Filipino Workers (OFWs), which in turn backed the country’s foreign reserves.

It said the current account surplus averaged at about three percent of domestic output from 2011-15.

“The country’s net external creditor position at nearly 14 percent of GDP compares to the median net debtor position of 4.6 percent of GDP among peers in the ‘BBB’ rating category,” it said.

The debt rater also cited the drop in the country’s debt and deficit levels, with the proportion of general government debt to gross domestic product (GDP) estimated at 36 percent of domestic output as of end-2015 from 43 percent in 2010.

Government fiscal gap as of end-2015 accounted for 0.9 percent of GDP from 3.5 percent in 2010, it said.

“Fitch estimates that the fiscal deficit would remain under two percent of GDP over 2016-2017,” it said

Fitch, on the other hand, said that it “continues to view low government revenues, which reduces the sovereign’s ability to contain fiscal balances in the event of a shock, as a weakness in the Philippines’ fiscal profile.”

It projects the general government revenue to account to 20 percent of domestic output in 2015, which it noted is “lower than the ‘BBB’ median’s 28.6 percent and ‘A’ median’s 34.7 percent.

The country’s low average income and level of development is a credit weakness, it said.

Domestic growth, meanwhile, “remains favorable”, it said citing the 5.9 average from 2011-15 which is far above the ‘BBB’ median of 3.3 percent and the ‘A’ median of 3.2 percent.”

“Fitch expects the Philippines’ growth momentum to continue and expects real GDP growth to average around six percent over 2016-17,” it said.

The debt rater also cited the “ample” domestic liquidity, the “strong” capitalization of the banking sector and its rising loan-loss reserves.

“Active supervision and regulation by a risk-aware central bank, which has progressively strengthened risk management requirements for the banks over the years, have helped to temper the risks from high credit growth,” Fitch said.

Improvement in governance standards was also cited as a plus on the country’s investment grade rating, which it achieved in 2013.

“It remains to be seen whether the next administration will preserve or extend the improvements in this area seen under Mr. (Benigno) Aquino’s (III) stewardship,” it added. (PNA) JFM/JSV/RSM