The Daily Manila Shimbun


Fitch affirms Philippines’ investment grade rating

March 29, 2017

Fitch Ratings announced Wednesday it affirmed the Philippines’ investment grade sovereign credit rating at ’BBB-’ as well as the positive outlook on the rating.

A positive rating outlook indicates an upward trend for a credit rating over a one-to two-year period.  Of the 114 sovereigns rated by Fitch, only six are on positive outlook, twenty one are on negative outlook, while the rest are on stable outlook.

In its report on its latest rating action on the Philippines released Wednesday , Fitch recognized the Philippines’ strong growth momentum, robust net external creditor position and low and manageable debt levels as factors that support the Philippines’ rating.

The Philippines grew by an average of 6.6 percent over the past five years, becoming one of the world’s fastest growing economies.

Fitch expects the Philippine economy to sustain its strong growth performance and forecasts GDP to increase by 6.8 and 6.7 percent in 2017 and 2018, respectively. Official targets for GDP are 6.5-7.5 percent in 2017 and 7.0-8.0 percent in the next two years.

Domestic demand supported by private consumption which grew 6.9 percent in 2016 and investment spending continue to fuel economic growth.

Sustained strong performance of the Business Process Outsourcing (BPO) sector also remained supportive of domestic demand, according to Fitch.

Capital formation grew a hefty 20.8 percent in 2016. Meanwhile, BPO revenues are projected to reach $24.5 billion this year from the estimated $22.9 billion in revenues in 2016.

The report also highlighted the country’s strong external position.

“The Philippines’ current account has been in surplus since 2003 which has led to a steady increase in its foreign exchange reserves and supports its net external creditor position,” Fitch said.

The current account surplus stood at $601 million in 2016 or 0.2 percent of GDP, supported by a sustained increase in overseas Filipinos remittances, as well as business process outsourcing revenues and tourism receipts.

Gross international reserves (GIR) stood at $81.4 billion as of end-February 2017, enough to cover nine months’ worth of imports.  Remittances which rose five percent in 2016 to $26.9 billion is expected to reach $27.7 billion this year.

Fitch acknowledged the BSP’s ( Bangko Sentral ng Pilipinas) “effective monetary policy stance given the maintenance of modest inflation levels, and the foreign exchange managed float regime allows the peso to act as a cushion against external shocks”.

The BSP has managed keeping prices low and stable. In 2016, inflation averaged 1.8 percent and Fitch expects inflation this year to likely remain within BSP’s target of between 2.0 – 4.0 percent.  It noted that the coming transition of the BSP Governor will be important in the context of policy stability and credibility.

BSP Governor Amando Tetangco, Jr. noted that Fitch’s latest assessment was driven mainly by solid performance of the Philippine economy across various metrics - robust and broad-based economic growth amid a stable inflation environment, strong external payments position, and sound and stable banking system.

Commenting on the change of leadership in BSP that Fitch noted in its report, Governor Tetangco said “BSP is a strong institution with highly capable and experienced officers and staff. Sound monetary policy making and prudent supervision of the banking system will continue after the leadership transition.” DMS