Fitch upgrades PH credit rating to BBB; fiscal policies support strong, sustained growth

December 11, 2017 - 5:23 PM
Workers lay out steel bars for an elevated highway project in Makati City. REUTERS FILE

MANILA – On the back of sound macroeconomic fundamentals, prudent economic policies, and sustained economic growth, Fitch Ratings upgraded on December 11, 2017 the Philippines’ long-term credit rating from “BBB-” to “BBB” with a stable outlook.

Credit ratings assess the default risk of a prospective debtor, providing guidance to investors, corporations, and governments worldwide. The improved credit rating of the Philippines will therefore enhance the government’s access to financing and potentially present more favorable terms and conditions for future loans.

According to the Department of Budget and Management, among the key ratings drivers cited by Fitch include the Philippine economy’s consistent growth performance evidenced by strong domestic demand and inflows of foreign direct investment, as well as the country’s robust fiscal position.

The ratings agency lauded the fiscal policies of the government that are geared to boost infrastructure spending and liability management. The tax reform initiative, in particular, will generate revenues for the government to finance its expenditure priorities while also supporting the projected decline of the government debt-to-GDP ratio to around 34%, below the “BBB” median of 41% of GDP.

On the monetary front, Fitch also mentioned that it expects inflation to remain within the 2% – 4% target band of the Bangko Sentral ng Pilipinas. The current account deficit is also expected to be manageable, driven by imports of capital goods, and being offset by remittance inflows and business process outsourcing (BPO) receipts. Furthermore, the credit agency said that foreign exchange reserve levels remain to be adequate, covering close to 8 months of current external payments.

“The Duterte Administration welcomes the good news of the credit upgrade by Fitch Ratings Inc.,” said Budget Secretary Benjamin E. Diokno. “The upgrade supports the growing consensus that the Philippines is one of the fastest growing countries not only in the fast-growing Asia Pacific region but also in the entire world,” the Budget chief added.

“As much as we are thankful, we will not rest on our laurels and will continue to persevere for the welfare of our constituents,” he continued. “Ultimately, this credit upgrade is only a means to an end for our overarching objectives – growth with equity evidenced by lower poverty levels, solid job creation, and higher human development.”