MANILA Global credit watcher Fitch Ratings on Wednesday maintained the Philippines’ long-term foreign-currency issuer default rating (IDR), but flagged the risk of the overheating given the recent uptick in inflation and the rapid credit growth.
In an emailed statement, Fitch said it maintained the Philippines’ IDR at “BBB,” accompanied by a stable outlook.
The Philippines scored a rating upgrade in December, which indicates that expectations of default risk in the country are low.
“The Philippines’ sovereign ratings balance a favorable growth outlook, government debt levels that are below peer medians, a net external creditor position and policies geared towards maintaining macrostability against lower income per capita and weaker governance and business environment indicators compared with its rating category peers,” said Fitch.
“However, the agency believes the economy faces some overheating risks, evident from a recent rise in inflation, rapid credit growth and a widening trade deficit, although steps taken by the Bangko Sentral ng Pilipinas (BSP) to tighten monetary policy may contain these risks,” it added.
Inflation has already breached 5 percent in June, the fastest in at least five years, the Philippine Statistics Authority (PSA) revealed earlier this month.
This is also faster than the 2- to 4-percent target range of the government for the full-year 2018.
Meanwhile, the Philippine trade deficit widened by 47.62 percent in May, as import receipts continued to grow while exports registered a decline.
Still, Fitch said the country is expected to continue leading growth in the region.
“We expect domestic demand to maintain strong growth of 6.8 percent in both 2019 and 2020, which would maintain the Philippines’ place among the fastest-growing economies in the Asia-Pacific region,” it said.
For its part, the government welcomed the sustained ratings from Fitch through remarks from Finance Secretary Carlos Dominguez III and BSP governor Nestor Espenilla, Jr.
“This is another recognition of the bold economic policy of the Duterte administration to fix the flawed tax system for the first time in over 20 years, and at the same time provide a steady revenue stream for its ‘Build, Build, Build’ infrastructure development initiative as well as for social programs that would accelerate poverty reduction and grow the middle class,” said Dominguez.
Espenilla, meanwhile, said the central bank will continue to promote inclusive growth under its “Continuity Plus Plus” agenda.
“This growth is sustainable under the auspices of the ‘Continuity Plus Plus’ agenda, where we not only build on strong frameworks, methods, and buffers already in place, but also undertake bold and purposeful financial sector reforms to make the banking and financial system and payments and settlements system more dynamic and truly inclusive,” he explained.
Espenilla, before taking over as the central bank chief in July 2017, said markets should expect a lot of continuity in terms of monetary policy and reforms. (GMA News)
