The New York-headquartered Fitch Ratings affirmed on Wednesday the country’s positive credit outlook, signaling a probable upgrade for the $292 billion Southeast Asian nation over the next 12 to 18 months.
In a statement released on Wednesday, Fitch Ratings said it retained the Philippines’ basic rating of triple B minus (BBB-) but with positive a outlook on the back of continued strong and consistent growth performance.
The ratings agency also cited the country’s net external creditor status and its core government debt as lower than the median of peer countries in the ‘BBB’ rating category.
Fitch’s latest models indicated the Philippines was likely to sustain its growth momentum this year with local output or gross domestic product (GDP) growth averaging 6.8 percent slightly moderating to 6.7 percent next year.
Fitch also forecasts inflation to increase to 3.3 percent this year from only 1.8 percent in 2016, the rate likely remaining within the target 2 percent to 4 percent for the period.
The influencing events compelling an upgrade for the Philippines include continued strong growth without the emergence of imbalances and the maintenance of external buffers that are resilient to potential negative external developments, including increased protectionism, Fitch said.
Further broadening of the revenue base leading to greater stability in government finance, for example, the successful passage of the proposed tax reforms and strengthening of governance standards plus the implementation of reforms that support growth and improve structural indicators likewise could lead to an upgrade, according to Fitch.
It noted, however, that the current rating is constrained by relatively weak governance standards, a narrow government revenue base, and level of per capita income and human development that are below its peers in the ‘BBB’ category.
New administration
While it lauded President Duterte’s continued pursuit of economic policies adopted earlier, Fitch said it will continue to keep an eye on its political decisions and how these affect sentiment across the economy.
“Fitch will continue to monitor the impact of the president’s campaign against drugs on economic performance, financing flexibility and capital flows,” the credit watcher said.
“In terms of the broader policy agenda, the new administration has adopted a 10-point socio-economic plan, which signals broad continuity of policies under the previous administration,” it added.