THE Philippine economy is expected to perform well in the next two years despite the surge in inflation and concerns on global volatility, a Fitch executive said in a recent forum.
International debt watcher Fitch Ratings managing director and chief operating officer Tony Stringer said Philippine GDP may expand by 6.7 percent in 2019 and 2020.
While the figure is below the government’s target of 7 percent to 8 percent for the next two years, Stringer expressed optimism that the Philippines will remain one of the fastest-growing economies in the Asia-Pacific region.
“Strong domestic demand will remain a driver of growth in the Philippines, supported by rising expenditure under the Philippine government’s public investment program and private consumption spending which remains supported by remittances,” he said.
Stringer’s forecast is higher than the Asean+3 Macroeconomic Research Office’s (AMRO) projected GDP growth of 6.4 percent for 2019.
Despite the rosy outlook, the executive warned of potential overheating pressures that may threaten the country’s economy.
Earlier this year, another international ratings agency, Moody’s Investors Services, also warned of overheating risks. Moody’s said the Philippines’s rating will likely be downgraded if macroeconomic stability were to be threatened by unabated overheating pressures leading to a deterioration in fiscal and government debt metrics and an erosion of the country’s external payments position.
Among the concerns that particularly point to overheating risks, according to Fitch in a previous release, includes the surge in inflation, rapid credit growth and a widening trade deficit.
Stringer said the Bangko Sentral ng Pilipinas (BSP) policy rate hikes totaling 150 basis points this year will help keep overheating pressures under control.
The Fitch executive also warned of risks to foreign investments to the coutnry down the line.
“While foreign direct investment (FDI) data suggest that foreign investor sentiment has been holding up reasonably well in recent months, a relatively weak business environment could pose a risk to attracting higher levels of FDI,” Stringer said.
As for the tax reform program of the government, Stringer said this has largely contributed to the surge of inflation for 2018. But its effect would likely dissipate next year.
Also, he said the ongoing tax reforms undertaken by the Philippine government will lift revenues and make the system more efficient and equitable.
“The increase in tax revenues should enable more investment in infrastructure which we think could encourage more local and foreign investment,” Stringer said.
In July, Fitch Ratings kept the Philippines’s rating at “BBB”, citing the country’s robust economic growth path and well-managed finances. The “BBB” is a notch above the minimum investment grade.
The rating was assigned a “stable” outlook, which means that the Investment grade rating of the Philippines is likely to remain unchanged within the next 12 to 18 months.