Debt watcher Fitch Ratings affirmed the Philippines’ credit rating of “BBB,” which is a notch above minimum investment grade, with a negative outlook as the country demonstrated sustained recovery from the devastating impact of the COVID-19 pandemic.
The Philippines maintained the same rating from Fitch throughout the pandemic, despite a wave of rating downgrades for many other countries during the same period. The outlook remained ‘negative’ since July 2021.
“[Philippine economic recovery] should be supported by a pick-up in vaccination rates [92 percent of 54 million target individuals had been fully vaccinated as of December 2021], falling COVID-19 infection numbers, normalized economic activity―particularly in services―after tight containment measures in 2020 and part of 2021,” Fitch said in a report Friday.
“The fiscal and monetary policy response, strong infrastructure spending, and resilient remittances and exports is also boosting the recovery,” it said.
Fitch’s rating affirmation followed the government’s announcement in January that the economy expanded by 7.7 percent in the fourth quarter of 2021 on the back of renewed growth in consumption and investments. This brought full-year GDP growth to 5.6 percent, exceeding the target range of 5.0 percent to 5.5 percent and reversing the 9.6-percent contraction in 2020.
Fitch kept the outlook on the BBB rating at “negative” as it cited risk factors such as the fiscal cost of the government’s COVID-19 response, the challenges arising from the unwinding of stimulus measures and post-election uncertainty, particularly on the continuity of fiscal and economic policies.
The debt watcher said the country’s fundamental policy strategies would continue, given the decades-long track record of sound economic performance.
Government officials cited favorable prospects for the Philippines this year and over the medium term following the better-than-expected growth in 2021 and the structural reforms implemented over the past six years.
Finance Secretary Carlos Dominguez said the government accommodated the huge cost of COVID-19 crisis response to help vulnerable sectors survive and recover from the crisis, largely because of President Duterte’s comprehensive tax reform program and his policy of prudent fiscal management and discipline.
“But we are also mindful not to pass on to future generations unsustainable debt. Estimated to have reached around 54 percent of GDP in 2021, the general government’s debt remains manageable, and we expect this to remain at around the same level this year and the next,” Dominguez said.
Fitch said the general government debt-to-GDP ratio of the Philippines was still below that of its peer median.
Dominguez said that, “considering the years of fiscal prudence, the rise in debt because of the pandemic did not prevent the country from having a favorable debt structure and ample access to low-cost funding.”
Fitch estimates general government interest payments as a share of general government revenues at 9.0 percent in 2021.
“Moreover, the Congress’ recent passage of game-changing economic reforms―namely the amendments to the Foreign Investments Act, Retail Trade Liberalization Act and Public Service Act, which are meant to further open the economy to foreign investment―is a strong indication that the economic reform momentum will continue beyond the current administration. These reforms will help the Philippines return soon enough to its rapid economic growth and support faster fiscal consolidation,” Dominguez said.
He said the Philippines’ long track record of pursuing structural reforms through successive political administrations led to the country’s solid macroeconomic fundamentals, which, in turn, contributed to significant development and financial inclusion outcomes.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said price and financial stability would help sustain Philippine economic recovery and growth.
“Besides improvement in the COVID situation amid rising vaccination rates, we also see that rising credit activities and a favorable inflation outlook will support growth moving forward,” Diokno said.
“The Philippine banking system has kept the impact of the crisis manageable. Philippine banks continue to serve the rising demand for credit. We also expect inflation to stay well within the target range of 2.0 to 4.0 percent this year up to 2024, which will provide an enabling environment for consumption and investments,” Diokno said.
Fitch said it expects the economy’s growth to accelerate from last year’s 5.6 percent. Fitch sees the gross domestic product growing by 6.9 percent this year and 7.0 percent next year.