The Philippines’ existing investment grade rating of “BBB” remains intact, according to a report released by Fitch Ratings.
Fitch cited robust economic growth, government’s comfortable debt level, and policies supporting macroeconomic stability. The “BBB” is a notch above the minimum investment grade.
Fitch assigned a “stable” outlook, signaling that the rating is likely to remain unchanged within the next 12 to 18 months. It expects the Philippines to maintain its “place among the fastest-growing economies in the Asia-Pacific region,” foreseeing “domestic demand to sustain strong growth of 6.8% in both 2019 and 2020”.
Fitch also said “improvement in [government] revenues should help preserve fiscal stability” even as the government pursues its bold infrastructure development agenda. In its infrastructure program, the government is set to increase spending on vital infrastructure annually from 6.1 percent of GDP this year to 7.3 percent by 2022.
“This is another recognition of the bold economic policy of the Duterte administration to fix the flawed tax system for the first time in over 20 years, and at the same time provide a steady revenue stream for its ‘Build, Build, Build’ infrastructure development initiative as well as for social programs that would accelerate poverty reduction and grow the middle class,” according to Finance Secretary Carlos G. Dominguez III.
Fitch also recognized the role of the Bangko Sentral ng Pilipinas (BSP) in helping keep the Philippine external accounts healthy, even amid challenges posed by the global economy.
The agency said the BSP’s flexible exchange rate policy will help keep the country’s foreign exchange reserves adequate, and will aid in maintaining the Philippines’ net creditor position vis-à-vis the rest of the world.
“The BSP’s firm commitment to price stability conducive to a balanced and sustainable growth of the economy has allowed the Philippines to remain resilient amid external headwinds and to remain as one of the fastest growing economies in the region,” said BSP Governor Nestor A. Espenilla, Jr.
While Fitch raised concerns about overheating, it nonetheless reassured that the steps taken by the BSP may help address these risks. On inflation, Fitch reported that it expects average inflation to fall to around 3.8% in 2019 as the one-off impact of the tax hikes are likely to dissipate.