Fitch raises PH outlook to positive

MANILA, Philippines – Fitch Ratings on Thursday, September 24, upgraded the Philippines’ outlook to “positive” from “stable.”

The London-based ratings agency affirmed the credit rating at “BBB-” or minimum investment grade. (READ: Fitch affirms Philippines’ ‘BBB-‘ rating)

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr said the positive outlook from Fitch signals the long overdue rating upgrade to reflect the economy’s outperformance that would help it withstand risks posed by the global economy.

“Sharp market volatility witnessed recently across the globe posed threats of spillover effects on the real sector of economies. What makes the Philippines an outperformer are its strong fundamentals, which entice short- and long-term capital once markets see through the temporary noise,” Tetangco said.

The revised credit outlook and the likely credit rating upgrade are a reflection of what financial markets say all along about the Philippines’ creditworthiness, Finance Secretary Cesar Purisima said.

“The Philippine economy continues to perform strongly despite turbulent headwinds, while financial markets continue to assess Philippine debt way better than what a BBB- rating reflects,” he added.

An investment grade is a seal of good housekeeping, as it signals to investors it is safe to do business and encourages them to put huge capital in the country.

Steady improvement

Fitch said the upgrade reflects the steady improvement of the governance standards and competitiveness indicators under the Aquino administration.

The country’s global competitiveness in the World Economic Forum (WEF) has risen to a level comparable to “BBB”-rated peers.

Indicators for corruption, transparency, and economic freedom have also improved substantially, Fitch added.

As such, Fitch could upgrade the country’s sovereign credit rating over the next 18 months, especially if the improvement in governance standards over the Aquino administration would be sustained following a change in government.

“Evidence that governance improvements can be sustained beyond the next election cycle would be positive for the credit,” the rating agency added.

Likewise, the country’s credit rating would be upgraded if the strong gross domestic product (GDP) growth, without the emergence of imbalances, would be sustained and if the general national revenue base that lends greater stability to the government finances would be broadened.

Fitch sees the country’s GDP growing by 5.6% this year as domestic demand remains robust even as external demand weakens.

The country’s GDP growth slowed down to 5.3% in the first half of 2015 from 6.4% in the same period last year due to weak global demand and lack of government spending.

But economic expansion is expected to pick up in the second half after accelerating in the second quarter to 5.6% from the revised 5% in the first quarter amid the improving government spending. (READ: Philippines’ Q2 GDP growth rises to 5.6%)

Fitch added that external finances continue to be key credit strength, as the Philippines has run current account surpluses since 2003, underpinned by high levels of worker remittances and revenue from the business process outsourcing industry.

Fitch is seeing the that the current account surplus narrowing to 3.5% this year but would be enough for the country to reinforce its position as a net external creditor.

“Fitch expects the Philippines’ strong external finances will provide resilience against potential shifts in global investor sentiment, for example following the tightening of US monetary policy,” it said.

Moody’s Investors Service as well as Standard & Poor’s (S&P) upgraded the country’s credit rating to a notch above minimum investment grade

Moody’s awarded a Baa2 with a stable outlook to the Philippines in December 2014. S&P gave the country a BBB with a stable in outlook in April this year.

Underrated

Despite the upgrade, Purisima pointed out that the Philippines is still underrated as it continues to outperform its single-A-rated neighbors in Southeast Asia.

He added that while a positive credit rating action seems abstract to most, its benefits are felt in the most concrete terms, like businesses being able to borrow more easily or more Filipinos finding better home and car loans. (READ: INFOGRAPHIC: What a credit rating upgrade means for Filipinos)

“Standing on ever firmer fiscal positions allows us to better withstand economic turbulence, an outcome not many of our neighbors can say they are enjoying at the moment,” Purisima said.

Thus, the need to preserve beyond 2016 the gains in good governance to avoid a deterioration in the country’s much improved creditworthiness, Editha Martin, executive director of the Investor Relations Office (IRO) stressed. – Rappler.com