ANOTHER credit-rating upgrade is in the offing for the country, after international credit watcher Fitch Ratings raised its outlook on the Philippines to “positive” on the back of improved governance standards and competitiveness indicators.
A positive outlook means that a rating upgrade is possible in the next 12 to 18 months for the country.
Of the three major credit watchers, Fitch is the only credit watcher that rates the Philippines a notch above junk status. Moody’s Investors Service and Standard & Poor’s Ratings Services puts the country two notches above junk status.
“Governance standards and competitiveness indicators, as measured by international organizations, have shown steady improvement through the Aquino administration. Global competitiveness, as ranked by the World Economic Forum, has risen to a level comparable to “BBB”-rated peers.Indicators for corruption, transparency and economic freedom have also improved substantially,” Fitch said.
Fitch also mentioned the country’s strong macroeconomic story— particularly the outperformance of economic growth, favorable demographics, external finance strength and low public debt.
Economic managers welcomed the development from Fitch.
“Sharp market volatility witnessed recently across the globe posed threats of spillover effects on the real sector of economies. What makes the Philippines an outperformer are its strong fundamentals, which entice short- and long-term capital once markets see through the temporary noise,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said.
“The positive outlook from Fitch signals the long overdue credit-rating upgrade, which appropriately reflects the economy’s outperformance,” he added.
Finance Secretary Cesar V. Purisima said the revised credit outlook is a reflection of what financial markets say all along about the Philippines’s creditworthiness.
“The Philippine economy continues to perform strongly despite turbulent headwinds, while financial markets continue to assess Philippine debt way better than what a ‘BBB-’ rating reflects. We thank Fitch for coming out with a positive outlook. While we still think we are underrated [we continue to outperform our ‘single A ’-rated neighbors in Southeast Asia], this is definitely a move in the right direction,” he said.
Fitch further noted that the “positive” outlook could eventually lead to a rating upgrade if there is evidence that improvement in governance standards over the Aquino administration can be sustained following a change in the government; there is continued strong growth without the emergence of imbalances; and there is evidence of a broadening of the general government revenue base that lends greater stability to the government finances.
However, the main factors that could see the ratings revert to “stable” outlook are: deterioration in governance standards or a reversal in reforms that were implemented under the Aquino administration and the instability in the financial system, possibly triggered by a sustained period of excessive credit growth, which could be considered credit-negative.