Fitch upgrades Philippines ratings to BBB, outlook stable

December 11, 2017

Fitch Ratings upgraded the Philippines' long term foreign currency issuer default rating to BBB from BBB- while placing its outlook at stable.

In a statement on Sunday, Fitch Ratings said  "strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates. Investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment."

Fitch said  "there is no evidence so far that incidents of violence associated with the administration's campaign against the illegal drug trade have undermined investor confidence."

Over the medium term, Fitch said it expects "higher infrastructure spending under the government's public investment programme to support continued robust growth."

Fitch forecasts real GDP growth of 6.8% in 2018 and 2019, which would maintain the Philippines' place among the fastest-growing economies in the Asia-Pacific region.

It expects inflation "to remain within the BSP's (Bangko Sentral ng Pilipinas) target range of 2 percent-4 percent."

Fitch estimates the tax reform bill "to be net revenue positive, reflecting an expansion of the VAT base and higher taxes on petroleum products, automobiles and on sugar sweetened beverages, which would more than offset a lowering of personal income taxes."

The government previously estimated that a full set of tax reform packages would boost revenue by 2 percent of GDP by 2019, with administrative measures to add another one percent of GDP over this period, Fitch said.

Fitch sees passage of the first part of the tax package " would add between 0.5 percent-0.8 percent of GDP to central government revenues in 2018."

Fitch added that the Philippines' current account is expected to shift into a deficit in 2017, for the second consecutive year. "We expect this trend to continue in 2018 and 2019. However, Fitch expects the deficits to be manageable at less than -0.5 percent of GDP."

Foreign direct investment (FDI) inflows will continue to fully cover the current account deficit, limiting the increase in external debt, it added.

Fitch said the Philippines "will continue to be a strong net external creditor in 2018 and 2019. At end-2017, its net external creditor position is projected at -14.2 percent of GDP, compared with 'BBB' median of -0.8 percent of GDP." DMS