GLOBAL debt watcher Fitch Ratings on Friday kept the Philippines’ minimum investment grade rating of BBB- with a positive outlook due mainly to the country’s strong external finances and declining government debt and deficit levels.
A “positive” outlook indicates the probability of a credit-rating upgrade within the next 12 to 18 months.
“The Philippines has been running current-account surpluses since 2003, with an average of around 3 percent of the [gross domestic product] for the period 2011-2015. This has been helped by the steady remittance inflow and has led to a build-up in foreign exchange reserves,” Fitch said.
It said the country’s net external creditor position at nearly 14 percent of GDP compares with the median net debtor position of 4.6 percent of GDP among peers in the ‘BBB’ rating category.
“Government debt and deficit levels have been declining and by the end
of 2015, general government debt to GDP is estimated at about 36 percent of GDP compared with 43 percent of GDP at the end of 2010,” Fitch said.
It said governance standards have continued to strengthen since 2010 under President Benigno Aquino III, especially government’s effectiveness and political stability as measured by World Bank’s governance metrics.
The credit watchdog also cited the country’s strong macroeconomic fundamentals. “Average real GDP growth in 2011-2015 was 5.9 percent, which is far above the ‘BBB’ median of 3.3 percent and the ‘A’ median of 3.2 percent,” it said.
It said liquidity levels in the Philippines’ banking sector were ample, capitalization was strong and loan-loss reserves have risen.
However, Fitch said the Philippines’ low average income and level of development was a credit weakness. The Philippines’ GDP per capita in 2015 was $2,860, which is lower than the ‘BBB’ median of $9,253.
The Investment Relations Office of Bangko Sentral ng Pilipinas said the Philippines remained underrated by Fitch, because it was the lowest among scores assigned to the Philippines by a host of credit rating agencies.
“Moreover, it reflects significant discrepancy with how financial markets actually assess the credit worthiness of the country,” IRO said.
Standard & Poor’s and Moody’s Investors Service had already raised the country’s credit rating a notch higher.
S&P raised the Philippines rating to BBB from BBB- with a stable outlook on May 8, 2014, while Moody’s raised its rating to Baa2 from Baa3 with a stable outlook on Dec. 11, 2014.
Fitch assigned a higher credit rating of BBB to Colombia, and an even higher rating of BBB+ to Thailand and Mexico.
“The Philippines’ debt burden is also more manageable compared with countries with higher credit ratings,” IRO said.
By the close of 2015, the Philippines’ general government debt as a percentage of GDP settled at 36.8 percent, better than Colombia’s 44.4 percent, Panama’s 40.6 percent, Mexico’s 44.6 percent, Spain’s 99.1 percent, and Italy’s 133.3 percent.
Panama is rated a notch higher by Fitch at BBB. Mexico, Spain, and Italy are rated two notches higher at BBB+.