Credit rating agency Fitch Ratings yesterday announced it is maintaining its investment grade credit rating and outlook on the Philippines, citing the “manageable fiscal situation despite the COVID-19 crisis” and “favorable growth prospects amid a declining number of daily confirmed COVID-19 cases.”
The country is currently rated “BBB” with stable outlook by Fitch.
BBB is one step above the minimum investment grade, while a stable outlook indicates absence of factors that could trigger adjustment in the rating within the short term.
Amid a wave of negative credit rating actions last year due to adverse impacts of the pandemic on the performance and credit profiles of many economies, the Philippines continues to defy global trend.
Data from the Investor Relations Office (IRO) showed that last June, Japan Credit Rating Agency upgraded the country’s credit rating by a notch from BBB+ to A-.
In May, S&P Global affirmed the country’s BBB+ ratings with a stable outlook. In February, another Japanese rating agency, CRA Rating and Investment Information Inc., upgraded the Philippines’ rating to BBB+.
All debt watchers cited the country’s strong fundamentals going into the crisis, the projected solid economic recovery, and gradual return to fiscal consolidation over the near term.
In 2020, Fitch implemented 51 credit rating downgrades affecting 33 sovereigns.
These include countries that previously had the same rating as the Philippines, such as Mexico, Colombia, and Italy – whose ratings were downgraded by a notch to the minimum investment grade of “BBB-”.
Fitch noted that the Philippines has “modest government debt levels relative to peers, robust external buffers, and still-strong medium-term growth prospects.”
Fitch also said it expects economic recovery in the coming quarters for the Philippines, placing its gross domestic product (GDP) growth projection at 6.9 percent for this year and 8.0 percent for next year.
Based on latest government projections, IRO said the Philippine economy will swing from recession in 2020 to growth of 6.5 and 7.5 percent this year and between 8 and 10 percent next year.
Growth will be supported by government spending, with an approved national budget of P4.506 trillion, which is 10 percent higher than last year’s and equivalent to 21.8 percent of GDP.
Fitch likewise recognized that “the Philippines external finances remain a credit strength,” citing gross international reserves (GIR) that are expected to remain equivalent to nine or 10 months of imports and other external payments this year and next year.
This compares with international standards which suggest that GIR worth at least three months of import cover is sufficient.
The debt watcher also expects the Philippine banking system to remain stable, with sufficient provisioning of banks that allow them to absorb any potential credit losses arising from the crisis.
Lower financing cost
The affirmation of the Philippines’ credit ratings by various debt watchers since last year has been beneficial, especially in relation to its efforts to fund coronavirus disease 2019 (COVID-19) recovery measures.
Favorable credit ratings help a sovereign access financing at lower cost.
Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor, said Fitch’s latest action means the agency understands “the Philippines’ credit and macroeconomic direction amid the global pandemic.”
“For our part, the BSP was among the first central banks in the world to respond to the crisis with a policy rate cut as early as February last year. We deemed it important to signal to the market that we were ready to act swiftly and decisively to buoy market confidence, as well as to ensure sufficient liquidity and efficient functioning of the financial system.”
Diokno added the BSP has implemented a long list of response measures, “including unprecedented ones – such as counting of loans to micro, small, and medium enterprises as part of compliance with the reserve requirement – in a manner that was prompt and decisive.”
“Given that the BSP, along with the rest of government, did its homework last year, we can see better days ahead as we look forward to the distribution of anti-COVID vaccines in the country,” Diokno said.
Credit, investment worthy
Finance Secretary Carlos Dominguez said the affirmation of the rating shows the country has remained “credit and investment worthy throughout the global COVID-19 crisis.”
“This is because, first, our strong economy on the Duterte watch gave us enough fiscal space to deal with the unprecedented health and economic crises. Second, there is a whole-of-government approach in saving lives, protecting communities and livelihoods, and providing relief to the hardest hit families, workers, and businesses. Third, we continued our commitment to prudent fiscal and debt management event as we start spending big on COVID-19 response measures to revive the economy and restore both business and consumer confidence,” Dominguez said.
Dominguez noted that as soon as the pandemic struck in early 2020, the Duterte administration came up with and shepherded the swift congressional passage of twin legislation (Bayanihan 1 and 2) “designed to beef up our healthcare infrastructure, extend the biggest emergency subsidies ever to poor families and dislocated workers, and provide relief to businesses, especially micro, small, and medium-sized enterprises.”
“Moreover, the government is also working with the Congress on the quick passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. This, and the Financial Institutions Strategic Transfer (FIST) bill, which has been passed by Congress, are meant to stimulate economic activity and speed up the country’s recovery from the pandemic-driven global growth slump,” Dominguez added.
He said pending the implementation of a mass vaccination program, the government has started relaxing mobility restrictions to further open up the economy on a calibrated basis, hence allowing businesses to resume or expand operations and boosting consumer spending.