Fitch Affirms Investment Grade Rating on PHL

Fitch Ratings on Wednesday affirmed its investment grade rating on the Philippines, given the domestic economy’s sustained robust growth.

In a statement, the debt rater said the decision to affirm its ‘BBB-‘ rating with Positive outlook on the country was made on back of the economy’s “continued strong and consistent growth performance, a robust net external creditor position and government debt levels that are lower than median peers in the ‘BBB’ rating category.”

Fitch’s current rating on the country

Fitch explained that the domestic output’s performance was “a rating strength” after noting the 6.8 percent expansion in 2016, which was higher than the previous year’s 5.9 percent.

This output, it said, was “supported by continued strong growth in private consumption spending and investment.”

Importance of inflows from overseas Filipinos, which has been a major growth driver and accounts for about 10 percent of gross domestic product (GDP), continued to boost domestic spending, it said.

Remittances grew by five percent in 2016, higher than the Bangko Sentral ng Pilipinas’ (BSP) four percent growth target.

Investment, in turn, remains strong on back of higher infrastructure spending, which gets backing from both the government and the private sector.

Sustained growth of the business process outsourcing (BPO) was another growth driver, it said, as it provided employment and boost domestic demand.

With these factors, Gross Domestic Product (GDP) in the last five years ending 2016 averaged at 6.6 percent, higher than the 3.2 percent medium for ‘BBB’-rated economies.

For 2017, the debt rater expects the Philippine economy to grow by 6.8 percent and by 6.7 percent in 2018. The growth forecast for the country this year is within the government’s 6.5-7.5 percent target while the 2018 GDP target is seven to eight percent.

The report cited increased violence as the Duterte administration addresses the illegal drugs issue but pointed out that “macroeconomic performance has remained strong” and that “domestic political stability has been maintained.”

It said monetary and exchange rate policies in the country “are effective” and the central bank “has been able to maintain inflation at modest levels.”

“The foreign exchange managed-float regime allows the peso to act as a cushion against external shocks, as evidenced by the downward adjustment in the currency following portfolio outflows in 2016.”

Fitch said that the upcoming change in the BSP regime, with BSP Governor Amando M. Tetangco Jr. stepping down from his two six-year terms on July 2, “will be important in the context of policy stability and credibility.”

It, however, said that over-all the debt rater will continue to monitor developments since its rating on the country is “constrained by relatively weak governance standards, a narrow government revenue base, and levels of per capita income and human development that are below the ‘BBB’ median”. (PNA)