Global debt watcher Fitch Ratings on Tuesday upgraded the credit rating outlook for the Philippines to “BBB” positive from “BBB” stable, saying the country’s solid macroeconomic fundamentals could weather external headwinds including the outbreak of 2019-novel coronavirus.
This put the country closer to the coveted “A” credit rating which is expected to draw more foreign investments and bring down the cost of borrowing.
Fitch said in a statement the outlook revision reflected expectations of the country’s continued adherence to a sound macroeconomic policy framework that would support high growth rates with moderate inflation, progress on fiscal reforms that should keep government debt within manageable levels and continued resilience in its external finances.
“Fitch expects growth to accelerate to 6.4 percent and 6.5 percent in 2020 and 2021, respectively, after slowing to 5.9 percent in 2019, supported by strong private consumption and rising public infrastructure investment,” it said.
“Overseas remittance inflows and favorable job prospects, evident from a falling unemployment rate, alongside accommodative monetary policy should support continued private consumption demand,” it said.
Fitch said the Philippines would remain among the fastest-growing economies in the Asia-Pacific region in 2020-2021, above the current ‘BBB’ median.
It said, however, that downside risks included the evolving coronavirus outbreak and natural disasters that could disrupt economic activity from time to time.
“It is still early to evaluate the effects of the outbreak, but the economy appears somewhat less vulnerable than regional peers as tourism accounts for less than 3 percent of GDP. In addition, the
Philippines retains room in our view for monetary and fiscal easing to offset the potential short-term impact on growth,” it said.
It said recent reforms to strengthen institutional effectiveness, human capital and the business environment should lead to a further improvement in the Philippines’ structural metrics over time.
These reforms include the passage of the Philippine Identification System Act of 2018, which aims to improve the delivery of public services, the New Central Bank Act to strengthen the Bangko Sentral ng
Pilipinas’ capacity to promote financial stability, increased coverage under the National Health Insurance Program and establishment of the Presidential Anti-corruption Commission.
“Fitch expects the Philippines’ fiscal profile to improve over the coming year, supported by continued progress on tax reforms, which should lead to higher government revenues. Package 2+ was passed in
January 2019, raising excise taxes on alcohol, heated tobacco, and vapor products. We expect revenue gains from this package and tax package 1A, passed in 2017, to raise central government revenues to
about 16.9 percent of GDP from an estimated 16.7 percent in 2019,” it said.
Japan-based Rating and Investment Information Inc. earlier upgraded the Philippines’ credit rating by a notch, from “BBB” to “BBB+,” bolstering the country’s momentum toward the government’s goal of securing “A” rating by 2022.