Global debt watcher Fitch Ratings on Tuesday kept the Philippines’ investment grade of ‘BBB’, citing the country’s robust economic growth, comfortable debt level and policies that are supporting macroeconomic stability.
Fitch also assigned a ‘stable’ outlook on the rating, which means the current status would remain unchanged in the next 12 to 18 months. The ‘BBB’ rating is a notch above the minimum investment grade.
Fitch said it was expecting the Philippines to maintain its “place among the fastest-growing economies in the Asia-Pacific region.” It said domestic demand would sustain a strong growth of 6.8 percent in both 2019 and 2020.
Fitch also said the “improvement in [government] revenues should help preserve fiscal stability” even as the government pursued a bold infrastructure development agenda.
The government plans to increase spending on vital infrastructure annually from 6.1 percent of gross domestic product this year to 7.3 percent of GDP by 2022.
Finance Secretary Carlos Dominguez III said this latest development was another recognition of the bold economic policy of the Duterte administration to fix the flawed tax system for the first time in over 20 years.
He said the changes in tax system would “provide a steady revenue stream for its ‘Build, Build, Build’ infrastructure development initiative as well as for social programs that would accelerate poverty reduction and grow the middle class.”
Fitch also recognized the role of the Bangko Sentral ng Pilipinas in helping keep the Philippine external accounts healthy, even amid challenges posed by the global economy.
Fitch said the BSP’s flexible exchange rate policy would help keep the country’s foreign exchange reserves adequate and would help maintain the Philippines’ net creditor position vis-à-vis the rest of the world.
Bangko Sentral Governor Nestor Espenilla Jr. said the bank’s firm commitment to price stability conducive to a balanced and sustainable growth of the economy allowed the Philippines to remain resilient amid external headwinds and emerge as one of the fastest growing economies in the region.
“This growth is sustainable under the auspices of the ‘Continuity Plus Plus’ agenda, where we not only build on strong frameworks, methods and buffers already in place, but also undertake bold and purposeful financial sector reforms to make the banking and financial system and payments and settlements system more dynamic and truly inclusive,” Espenilla said.
Fitch raised concerns about overheating but reassured that the steps taken by the BSP might help address these risks.
Fitch said average inflation rate was expected to fall to around 3.8 percent in 2019 as the one-off impact of the tax hikes would likely dissipate.
Bangko Sentral said it was confident the Philippine economy would be able to maintain a robust growth without causing runaway inflation on account of the government’s investments in infrastructure which would help boost the economy’s productive capacity.