The government’s economic team welcomed the decision by Fitch Ratings to keep the Philippines’ investment-grade long-term foreign currency rating at ‘BBB’ with a stable outlook.
“It bears noting that Fitch cited the Philippines’ strong medium-term growth as one of the reasons for our rating. We hope to sustain our momentum for growth and keep our lead as one of the fastest-growing economies in Southeast Asia,” said Department of Budget and Management Secretary and Development Budget Coordination Committee chairperson Amenah Pangandaman.
“For our part at the Department of Budget and Management, we will continue to pursue the priorities under our Agenda for Prosperity, such as the Build-Better-More infrastructure program, and accelerate our reform agenda to ensure that our government spending will yield higher productivity and contribute to the growth story of the country,” she said.
Fitch expects the Philippine economy to expand by 5.8 percent in 2024 and forecasts real GDP growth of above 6 percent over the medium term, supported by investments in infrastructure and public-private partnerships (PPPs).
Fitch cited the country’s strong economic growth, manageable debt levels, sound and effective inflation control by the Bangko Sentral ng Pilipinas (BSP). The country’s investment-grade credit rating has been in place since December 2017.
BSP Governor Eli Remolona, Jr. welcomed Fitch’s recognition of the central bank’s efforts to keep inflation within target and highlighted the BSP’s data-driven approach to setting monetary policy.
An investment-grade rating signals reduced credit risk, allowing countries to access funding at lower costs.
A ‘BBB’ rating, which is above the minimum investment grade, indicates a low expectation of default risk, with the country’s capacity to meet financial commitments deemed adequate. Meanwhile, a “stable” outlook suggests a low likelihood of a rating change over the next one to two years.
Fitch acknowledged the country’s robust medium-term growth potential, stable debt levels, strong macroeconomic policies as well as the central bank’s credible inflation targeting framework.
Since May 2022, the Bangko Sentral ng Pilipinas (BSP) has raised the policy rate by 450 basis points to 6.5 percent to bring inflation within government’s target range of 2.0 to 4.0 percent.
The Philippine Statistics Authority (PSA) reported that headline inflation rose slightly to 3.9 percent in May from April’s 3.8 percent, with the national average for January to May 2024 at 3.5 percent, down from 6.1 percent in May 2023.
Fitch said it expects inflation to remain within the upper half of the BSP’s inflation target range and to moderate to 3.8 percent and 3.4 percent by 2024 and 2025, respectively.
Fitch also expects the general government debt to remain stable at 54 percent of GDP by 2025, alongside a narrowing current account deficit. The debt watcher sees the current account deficit decreasing to under 2.0 percent of GDP (below $10 billion) by 2025 from 2.6 percent of GDP (over $11 billion) in 2023.
