Fitch upgrades PHL credit rating to ‘BBB’

Global credit watcher Fitch Ratings has upgraded the Philippines' long-term foreign-currency issuer default rating (IDR) to "BBB" with a stable outlook, citing the country's strong macroeconomic performance and fiscal policies.

Fitch said the upgrade of the Philippines' IDR from BBB- indicates "good credit quality."

"'BBB' ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity," Fitch said.

Fitch cited a continued uptrend in Philippine economic growth.

"Strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates," it said.

Finance Secretary Carlos Dominguez III welcomed this recent development.

"We are pleased that Fitch is finally convinced that the Philippine economy now is much stronger and more resilient than in 2013, when they granted the Philippines its first investment grade credit rating of BBB," Dominguez said in a press release.

“Our macroeconomic fundamentals are on par with, if not better than, those of higher-rated sovereigns and continue to improve. Our economic growth in recent years has been one of the fastest in the region and among our rating peers. Our fiscal position is much stronger now on account of administrative measures we are implementing to improve revenue collection efficiency of the BIR (Bureau of Internal Revenue) and BOC (Bureau of Customs), and the budget and expenditure reforms being pursued by DBM (Department of Budget and Management),” Dominguez added.

The Philippine economy grew by 6.9 percent in the third quarter of the year, higher than a market consensus of 6.6 percent, the Philippine Statistics Authority (PSA) reported last month.

"Investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment," Fitch said.

"As such, there is no evidence so far that incidents of violence associated with the administration's campaign against the illegal drug trade have undermined investor confidence," it added.

Looking forward, Fitch said it expects the improvement of the country's fiscal policies with the passage of the planned tax reform program.

"Fitch expects the Philippines' fiscal profile to improve as a result of the government's tax reform initiative," it said.

Dominguez, meanwhile, said the government's structural programs such as Comprehensive Reform Program, the bold infrastructure development agenda and the liberalization of the investment regime would help "accelerate expansion and increase income in lagging regions.

"While we are not targeting ratings per se, I am confident that with these reforms, there will be more positive rating actions in the next couple of years,” the Finance chief said.

Both chambers of Congress have approved their respective versions of the Tax Reform for Acceleration and Inclusion (TRAIN), which is now being scrutinized at the bicameral level.

"The government previously estimated that a full set of tax reform packages would boost revenue by 2 percent of GDP (gross domestic product) by 2019, with administrative measures to add another 1 percent of GDP over this period," Fitch said.

Fitch also recognized the appointment of Nestor Espenilla as the new chief of the Bangko Sentral ng Pilipinas (BSP), noting that this has supported monetary policy credibility.

With Espenilla at the helm of the BSP, Fitch said it expects inflation to remain well managed and to stay within the target band of 2.0 to 4.0 percent.

Espenilla was appointed as the new governor of BSP in May.

Following the upgrade, Espenilla vowed that BSP would remain committed in their mandate of price and financial stability.

“We expect this virtuous cycle to continue. BSP will remain committed to our crucial mandate of price and financial stability, which are necessary to further accelerate economic growth in the country," Espenilla said.

"At the same time, we will vigorously pursue game-changing financial sector reforms that support economic growth and to ensure that the benefits of a fast- growing economy are felt by more Filipinos,” Espenilla added.

Espenilla said the recent upgrade from Fitch has showed that the productive capacity of Philippine economy is currently expanding.

"This is making possible higher GDP growth that is sustainable. Inflation is low and stable while the balance of payments remains very manageable," Espenilla said.

"The domestic financial system’s resources and profitability have continued to increase, governance standards and risk management systems have been enhanced, and significant inroads toward financial inclusion is being achieved," he added. —ALG/BM, GMA News