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Friday, March 29, 2024

Fitch outlook a vote of confidence in PH

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House Speaker Ferdinand Martin Romualdez on Tuesday welcomed Fitch Ratings’ upgrade of its credit outlook for the Philippines’ long-term debt to “stable,” calling the decision of the international credit rating agency “an unequivocal vote of confidence” in the socioeconomic agenda of the Marcos administration.

“This is clearly an acknowledgment of our efforts to push through Congress the measures and reforms needed to pursue the eight-point socioeconomic agenda of President Ferdinand Marcos Jr., meant to create more jobs, improve social services and steer the economy irreversibly back to the strong growth path it is on before the pandemic,” said Romualdez.

He reiterated the firm commitment of the House of Representatives to pass the priority bills of the Marcos administration necessary to institute needed reforms meant to accelerate the momentum of the country’s post-pandemic economic recovery.

“The House of Representatives will persevere in doing our part to make sure the promise of a strong economy, more and better-paying jobs, food and energy security and better education and opportunities for our youth are realized within the Marcos administration,” he said.

Fitch announced on Monday that it revised from “negative” to “stable” the outlook on the Philippines’ long-term foreign-currency issuer default rating and affirmed the country’s rating at investment grade ‘BBB’.

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Bangko Sentral ng Pilipinas Governor Felipe Medalla said the BSP’s exceptional and timely actions, which included aggressive monetary tightening and the previous temporary financing to the government during the pandemic, had not resulted in adverse side effects on the stability of the financial system.

“With the Philippine banking sector being liquid and well-capitalized, the central bank stands ready to use all the tools at its disposal to preserve price stability,” Medalla said.

The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, maintained last week the benchmark interest rates at 6.25 percent, calling it a “prudent pause” that took into account the recent downward trajectory of inflation since it peaked at 8.7 percent in January 2023.

Inflation settled at 8.6 percent in February, 7.6 percent in March and 6.6 percent in April.

Fitch acknowledged the credibility of the central bank’s inflation-targeting framework and flexible exchange rate regime.

“Last year’s interventions to mitigate peso volatility have been reversed. Monetary financing to the government during the pandemic was more limited and was reversed more quickly than in some peers,” Fitch said.

The BSP’s policy toolkit includes interest rate adjustments, a flexible exchange rate and the use of foreign exchange reserves. The BSP also supports the implementation by the national government of targeted non-monetary interventions to help address price pressures.

The country has maintained the same investment-grade credit rating from Fitch since December 2017 and the revision of the outlook to ‘stable’ from ‘negative’ is in view of the country’s strong and resilient economic growth, sound economic policy framework and comfortable external payments position.

A sovereign investment-grade rating indicates lower credit risk, thus allowing a country to access funding from development partners and international capital markets at lower cost. This enables a country to channel funds that would have otherwise been allotted for interest payments to socially beneficial programs and projects.

A ‘BBB’ rating, a notch above the minimum investment grade, indicates that expectations of default risk are currently low. It also means that the country’s current capacity for payment of financial commitments is considered adequate.

An assignment of a ‘stable’ outlook means Fitch is not likely to change its rating over a one- to two-year period.

Fitch expects inflation to moderate to an average of about 4.0 percent by 2024.

Based on the latest BSP forecasts, inflation is seen to return to the 2 percent to 4 percent target range in the latter part of the year to average 5.5 percent in 2023 and settle within the target at 2.8 percent in 2024.

Fitch also forecasts real gross domestic product growth above 6.0 percent over the medium term, considerably stronger than the ‘BBB’ median of 3.0 percent, after a record outturn of 7.6 percent in 2022, reflecting normalization of activity after the pandemic and the government’s investment program.”

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