Global debt watcher Fitch Ratings on Friday affirmed the Philippines’ investment grade rating of “BBB,” citing the country’s sustainable economic growth and strong external position despite foreign and domestic risks that threaten further expansion.
Fitch said in a statement the economy was poised to recover this year, growing by 6.1 percent and likely negate the sluggish 5.6-percent expansion in the first quarter. The outlook for the rating was stable.
“The ratings balance the Philippines’ prospects of strong sustainable growth and high levels of foreign-exchange reserves against relatively low per-capita income, governance indicators, and government revenue,” Fitch said.
“We expect the economy to expand at more than 6 percent per year over the medium term, well above the current peer median. We estimate growth of 6.1 percent in 2019 as momentum is likely to recover after a slowdown to 5.6 percent in the first quarter from weaker exports and government spending due to the delay in the passage of the 2019 budget,” it said.
Fitch said growth would remain supported by strong private consumption and the government’s public-investment program, which aims to increase infrastructure spending to about 7 percent of the gross domestic product by 2022 from 4.5 percent in 2017.
But Fitch cited the downside risks to growth, such as those coming from the slowdown in China and spillovers from the escalating US-China trade tensions.
“Fitch believes overheating risks have subsided following the cumulative rate hikes of 175 basis points last year by the Bangko Sentral ng Pilipinas. Inflation slowed to 3 percent (within the BSP’s target range of 2 percent to 4 percent) in April 2019 from a peak of 6.7 percent late last year, facilitated by the passage of the rice tariffication law that lifts import restrictions, and credit growth slowed significantly,” it said.
The Bangko Sentral has cut the policy rate by 25 basis points so far this year and announced a reduction in the reserve requirement by 200 basis points.
“The agency expects average inflation to decline to 3.4 percent in 2019 from 5.2 percent in 2018,” Fitch said.
Finance Secretary Carlos Dominguez III welcomed the move of Fitch, which noted the Philippine economy’s resilience to both external and domestic headwinds.
“In part, the strength of the economy is credited to the decisive leadership of President Duterte who has demonstrated strong political will in implementing unpopular game-changing reforms to sustain the growth momentum and achieve financial inclusion for all,” Dominguez said
“The first package of the comprehensive tax reform program and the liberalization of the rice sector, among a long list of reforms implemented recently, are vital structural changes that will keep the economy on its high growth path, create more jobs, and improve the living standards of Filipinos,” Dominguez said.
He said despite external and internal financial threats, economic growth was expected to gain more traction now as the government started implementing a catch-up spending program on infrastructure and human capital development to reverse the lower-than-expected expansion in the year’s first quarter.