BANKS KEPT COVID IMPACT MANAGEABLE
Fitch expects PH growth to accelerate. From last year’s 5.6%, Fitch sees the country’s gross domestic product growing by 6.9% this year and 7% next year.
With COVID weakening, the Philippines is preparing to go back to pre-2019 normal. It could be a strong normal considering some positive fundamentals: Game-changing reforms, manageable debt-to-GDP ratio, rising credit activities, a favorable inflation outlook, banks meeting rising credit demand, and assurances of technocratic talent under President Duterte staying in the new government, most likely under a President Ferdinand “Bongbong” Marcos Jr. who is way ahead in poll surveys.
BiznewsAsia
Fitch Ratings on Feb. 17, 2022 affirmed the Philippines’ credit rating of “BBB,” which is a notch above minimum investment grade.
The credit rating agency cited the country’s economic gains that demonstrate sustained recovery from the COVID-19 crisis.
The Philippines has maintained the same rating from Fitch (as with the ratings of other debt watchers) throughout the pandemic, despite a wave of rating downgrades for many other countries during the same period.
“[Philippine economic recovery] should be supported by a pick-up in vaccination rates (92% of 54 million target individuals had been fully vaccinated as of December 2021), falling Covid-19 infection numbers, normalized economic activity — particularly in services — after tight containment measures in 2020 and part of 2021. The fiscal and monetary policy response, strong infrastructure spending and resilient remittances and exports is also boosting the recovery,” Fitch said.
For his part, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said price and financial stability will help sustain Philippine economic recovery and growth. “Besides improvement in the COVID situation amid rising vaccination rates, we also see that rising credit activities and a favorable inflation outlook will support growth moving forward,” he pointed out.
Inflation within target
“The Philippine banking system has kept the impact of the crisis manageable. Philippine banks continue to serve the rising demand for credit. We also expect inflation to stay well within the target range of 2% to 4% this year up to 2024, which will provide an enabling environment for consumption and investments,” Diokno added.
Meantime, Fitch expects the Philippine economy’s growth to accelerate. From last year’s 5.6%, Fitch sees the country’s gross domestic product growing by 6.9% this year and 7% next year.
Fitch’s rating affirmation followed the Philippine government’s announcement in January 2022 that the economy expanded by 7.7% in Q4 2021 on the back of renewed growth in consumption and investments.
The strong growth in the last quarter of 2021 brought full-year GDP growth to 5.6%, exceeding the target range of 5% to 5.5% and reversing the recession in 2020.
Negative outlook
Fitch, however, kept the outlook on the BBB rating at “negative”.
Risk factors cited by Fitch included the fiscal cost of the government’s COVID-19 response, the challenges arising from the unwinding of stimulus measures, and post-election uncertainty, particularly on the continuity of fiscal and economic policies.
The debt watcher was also of the view that the country’s fundamental policy strategies will continue, given the decades-long track record of sound economic performance.
In response to Fitch’s positive assessment, two of the country’s top economic officials, Finance Secretary Carlos Dominguez and Bangko Sental Governor Benjamin Diokno have cited favorable prospects for the Philippines for this year and over the medium term following the better-than-expected growth in 2021 and the structural reforms implemented over the past six years.
“The Philippine banking system has kept the impact of the crisis manageable. Philippine banks continue to serve the rising demand for credit. We also expect inflation to stay well within the target range of 2% to 4% this year up to 2024, which will provide an enabling environment for consumption and investments.”
Diokno
“The government has accommodated the huge cost of COVID-19 crisis response to help vulnerable sectors survive and recover from the crisis, largely because of President Duterte’s comprehensive tax reform program and his policy of prudent fiscal management and discipline. But we are also mindful not to pass on to future generations unsustainable debt. Estimated to have reached around 54% of GDP in 2021, the general government’s debt remains manageable, and we expect this to remain at around the same level this year and the next.”
Dominguez
Dominguez said: “The government has accommodated the huge cost of COVID-19 crisis response to help vulnerable sectors survive and recover from the crisis, largely because of President Duterte’s comprehensive tax reform program and his policy of prudent fiscal management and discipline. But we are also mindful not to pass on to future generations unsustainable debt. Estimated to have reached around 54% of GDP in 2021, the general government’s debt remains manageable, and we expect this to remain at around the same level this year and the next.”
PH debt ratio below that of peers
Fitch cited that the general government debt-to-GDP ratio of the Philippines is still below that of its peer median.
Dominguez added: “Considering the years of fiscal prudence, the rise in debt because of the pandemic did not prevent the country from having a favorable debt structure and ample access to low-cost funding.”
Fitch estimates general government interest payments as a share of general government revenues at 9% in 2021.
Game-changing reforms
“Moreover, the Congress’ recent passage of game-changing economic reforms—namely the amendments to the Foreign Investments Act (FIA), Retail Trade Liberalization Act (RTLA) and Public Service Act (PSA), which are meant to further open the economy to foreign investment—
is a strong indication that the economic reform momentum will continue beyond the current administration. These reforms will help the Philippines return soon enough to its rapid economic growth and support faster fiscal consolidation,” Dominguez stressed.
He noted that “the Philippines’ long track record of pursuing structural reforms through successive political administrations has led to the country’s solid macroeconomic fundamentals, which, in turn, have led to significant development and financial inclusion outcomes.”
Deep technocratic bench to remain
Dominguez pointed out that, “the deep bench of technocrats who have helped steer economic policies will be staying beyond June 2022 and would help ensure the continued pursuit of structural reforms.
These, in turn, will help the Philippines sail through its next stage of economic development as we expect the Philippines to transition from lower-middle-income to upper-middle-income status this year.