go through Luisa Maria Jacinta C. Josen, Senior Reporter
Fitch Rating Confirmation The Philippines has rated investment ratings and maintained a “stable” outlook with strong growth prospects and a minimum of trade tensions.
In a review of the rating action on Tuesday, credit evaluators sayfThe Philippines’ long-term foreign currency issuer’s default rating on “BBB” indicates a low risk of default and reflects the economy’s sufficient debt capacity.
Debt viewers also maintain their outlook with a “stable” rating, meaning that it may be maintained rather than reduced or upgraded over the next 18-24 months.
It said: “The 'BBB' rating and 'stable' outlook reflect strong medium-term growth in the Philippines, which supports a gradual decline in government debt to GDP and a large economic scale relative to the 'BB' peers.”
However, Fitch said that while this is an uptrend, it is “limited by lower GDP per person (gross domestic product). Governance standards are weaker than the 'BBB' peers, although Fitch believes the World Bank Governance Indicator (WBGI) scores are somewhat exaggerating.”
Fitch expects the Philippines' GDP to grow by 5.6% this year, below the government's 6-8% target.
It noted that Philippine economic growth was driven by “a large amount of public investment in private consumption funded by infrastructure, services exports and remittances.”
It added: “Private demand should be supported by ease of inflation and interest rates. However, domestic political uncertainty may affect investment, and global trade tensions may hinder growth, especially by indirectly delaying growth through weaker global demand.”
Fitch said real GDP growth is still expected to expand to more than 6% in the medium term.
“Our forecasts reflect returns from infrastructure investment and a range of structural reforms in recent years to enable the economy and promote trade and investment (including through public-private partnerships).
It added: “Technological change poses a risk to the large outsourcing sector in the Philippines, although it is adapting.”
At the same time, credit scorers also pointed out that the Philippines is relatively unaffected by global trade uncertainty and has lower mutual tariffs compared with neighboring countries.
“The Philippines is a relatively closed economy, with commodity exports accounting for only 12% of GDP in 2024, based on payment balance statistics, mainly electronics and machinery. More than 16% of commodity exports are exported to the United States.”
The United States shot a 17% mutual tariff rate in the Philippines, the second lowest in Southeast Asia. However, this higher tariff has been suspended until July.
Fitch said the U.S. responsibilities are relatively low compared to its regional counterparts.
It added: “The Philippines' trade terms may benefit from lower commodity prices or the transfer of Chinese exports.”
Debt watchers also cite the country’s “success in taming inflation” and expect further monetary easing this year.
“We expect that in 2025-2026, the price inflation rate for consumers will remain around 2% at the lower limit of the central bank's target range.”
It added: “We continue to see the central bank’s inflation target framework and flexible exchange rate regime as credible.”
BSP Governor Eli M. Remolona, Jr. Fitch is welcome to reaffirm the country's credit rating and stable prospects.
“The BSP has taken action to help keep inflation good and promote sustainable economic growth. The BSP will continue to do so,” he said in a statement.
Inflation averaged 2.2% in the first quarter, well beyond the central bank's 2-4% target.
“Money financing for fiscal deficits during the pandemic is limited and reversed faster than some of their peers. The government's response to commodity price shocks is measured, for example, when boycotting calls for broad fuel subsidies.”
Given that “there is less government-shouldering domestic political environment, Fitch expects a slower path to fiscal consolidation”.
The government aims to gradually reduce its deficit to GDP from 5.3% this year to 3.7% in 2028.
Fitch believes the country's general government deficit narrows to 3.6% next year, and its central government deficit reaches 4.6% by 2026.
From 2025 to next year, the ratio of government general government debt to GDP will mainly remain between 54% and 55%.
It added: “Strong nominal GDP growth and narrow fiscal deficits contribute to our forecasts of a decline in the medium term government debt to GDP.”
Meanwhile, Fitch also said the Philippines' current account From this year to 2026, the deficit will remain “broad and unchanged”.
“Strong domestic demand related to the development of public infrastructure will continue to drive import growth, offset by lower hydrocarbon import prices and growth in remittances and services exports.”
Fitch also cites factors that may lead to negative rating actions alone or collectively, such as failure to maintain stable debt to GDP levels; reduced confidence in medium-term economic growth; and deterioration in foreign currency reserves.
On the other hand, factors that can support the upgrade are the continuous decline in government debt levels, the economic growth exceeding expectations, and the strengthening of governance standards.
The Fitch investment grade “lower signal credit risk and affordable funding acquisition”.
It added: “This allows a country to allocate funds to society for beneficial initiatives and programs.”
