On Thursday Fitch Ratings improved its outlook on the Philippines’ credit rating, which went from “stable” to “positive.” The country’s current rating of BBB-, which is the minimum investment grade, is very likely to be upgraded soon.
Fitch cited better governance under the Aquino administration that has led to the economy’s improved competitiveness. According to the credit rating firm, the country’s young population, with a median age of 23.5 years, boosts the economy’s chances of supporting higher productivity in the coming years.
“Economic growth continues to outperform ‘BBB’-rated peers, and favorable demographics support the medium-term growth outlook,” Fitch said in a report released Thursday.
The credit watchdog likewise pointed to the economy’s solid fundamentals, which help cushion the impact of outside challenges, such as growth slowdown of China and market volatility arising from the impending normalization of U.S. policy rates. It cited the economy’s declining debt burden and robust external position.
General government debt stands at 36.3 percent of gross domestic product, better than the median of 42.4 percent among economies with a higher credit rating of BBB. The general government debt has fallen consistently from 44.3 percent in 2009.
The country has posted surpluses in its current account for the past 12 consecutive years, fueled by a steady stream of foreign exchange led by remittances and investments in the business process outsourcing industry.
Withstanding global economic turbulence
“Fitch expects the Philippines’ strong external finances will provide resilience against potential shifts in global investor sentiment, for example following tightening of U.S. monetary policy,” it said.
Meantime, BSP Governor Amando Tetangco, Jr. reiterated views that the economy’s strong fundamentals will help it withstand risks posed by the global economy.
“Sharp market volatility witnessed recently across the globe posed threats of spillover effects on the real sector of economies. What makes the Philippines an outperformer are its strong fundamentals, which entice short- and long-term capital once markets see through the temporary noise,” Tetangco said.
“The positive outlook from Fitch signals the long overdue credit rating upgrade, which appropriately reflects the economy’s outperformance,” the BSP governor added.
Finance Secretary Cesar Purisima said the revised credit outlook and the likely credit rating upgrade were a reflection of what financial markets say all along about the Philippines’ creditworthiness.
“The Philippine economy continues to perform strongly despite turbulent headwinds, while financial markets continue to assess Philippine debt way better than what a BBB- rating reflects. We thank Fitch for coming out with a positive outlook. While we still think we are underrated (we continue to outperform our single-A rated neighbors in Southeast Asia), this is definitely a move in the right direction,” he said.
Loans will be easier to apply for
Explaining what the credit rating action means to everyday Filipinos, Purisima said, “While a positive credit rating action seems abstract to most, its benefits are felt in the most concrete terms. Businesses are able to borrow more easily, and everyday Filipinos find better home and car loans, for example. Standing on ever firmer fiscal positions allows us to better withstand economic turbulence, an outcome not many of our neighbors can say they are enjoying at the moment. This is a layer of protection we’ve worked hard to maintain for our most vulnerable, as well as the middle class we want to keep growing.”
Editha Martin, executive director of the Investor Relations Office, stressed the need to preserve beyond 2016 the gains in good governance to avoid a deterioration in the country’s much improved creditworthiness.
“Over the past five years, governance standards in the Philippines have improved in a manner that the international community finds hard to ignore, leading to concrete benefits such as investment grade sovereign credit ratings,” Martin said.
“It is everyone’s responsibility to ensure that good governance is preserved, or even enhanced, after the end of the current administration,” Martin said. She said this as Fitch noted that the Philippines has to sustain improvements in governance standards to avoid a deterioration of the latest credit rating outlook.
“As we continue to consolidate our gains, the impetus to institutionalize our reforms becomes clearer,” Purisima added.
– From the Department of Finance
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