AS the Philippines continues to enjoy the confidence of Fitch Ratings in its ability to pay its debts, the Bangko Sentral ng Pilipinas (BSP) gave assurances that it will remain data-dependent when it comes to deciding on key policy rates.
Fitch Ratings has affirmed the Philippines’ “BBB” credit rating, which is a notch above the minimum investment grade, and has kept the outlook on the rating at “stable.”
The credit rating agency also viewed the monetary policymaking in the Philippines “credible,” which mitigated the volatility of the peso last year and the government’s resistance to widespread fuel subsidies amid rising inflation.
“We welcome Fitch’s recognition of the work being done by the central bank to bring inflation back to within the target range. The BSP will remain data-dependent in managing inflation expectations in an effort to avoid the second-round effects of supply shocks,” BSP Governor Eli M. Remolona Jr. said in a statement over the weekend.
BSP’s Monetary Board has increased the policy rate by a total of 450 basis points to 6.5 percent, to bring inflation back to within the government’s target range of 2 to 4 percent.
In October this year, the Philippine Statistics Authority (PSA) reported that year-on-year headline inflation slowed to 4.9 percent from 6.1 percent in September. Fitch expects inflation to moderate to 3.5 percent by 2025.
Fitch sees the Philippines’ real gross domestic product growing above 6 percent over the medium term, supported by large infrastructure investments as well as trade and investment reforms.
The PSA also reported that the Philippine economy rebounded strongly in the third quarter of 2023 with a growth of 5.9 percent, due mainly to the recovery in government spending.
Fitch expects the country’s general government debt to decline to 54 percent of GDP in 2025 after peaking slightly above this level from 2023 to 2024.
An investment-grade rating indicates lower credit risk, thus allowing a country to access funding at lower costs from development partners and international capital markets.
This enables a country to channel funds that would have otherwise been allotted for interest payments to socially beneficial programs and projects.
A ‘BBB’ rating indicates that expectations of default risk are currently low. It also means that the country’s current capacity for payment of financial commitments is considered adequate.
Moreover, an assignment of a “stable” outlook means Fitch is not likely to change its rating over a one- to two-year period.