Fitch affirms Philippines’ ‘BBB-‘ rating

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Fitch affirms Philippines’ ‘BBB-‘ rating
The country's 'BBB-' rating is one notch below the rating assigned to the Philippines by Moody’s Investors Service and Standard & Poor’s

MANILA, Philippines – Fitch Ratings has maintained its credit ratings for the Philippines for the second consecutive year, and said that the country’s outlook remains stable for the next 6 months to one year.

Fitch Ratings has affirmed the country’s “BBB-” rating for long-term foreign currency issuer default and “BBB” for local currency issuer defaults ratings (IDRs) for now.

Ratings for senior unsecured foreign and local currency bonds are also affirmed at “BBB-” and “BBB” respectively.

The outlooks on the long-term IDRs are stable, Fitch said. The country ceiling is also affirmed at “BBB” and the short-term foreign currency IDR at “F3,” Fitch said Tuesday, March 17.

Fitch’s credit rating for the Philippines is one notch below the rating assigned by Moody’s Investors Service and Standard & Poor’s.


In a statement released Wednesday, March 18, Finance Secretary Cesar V. Purisima said the country remains underrated by Fitch. Thus, the country’s credit story is expected to further improve as the good governance agenda continues, he said.

“Looking ahead, we expect credit ratings to further improve as the country continues to register even better fundamentals on the back of expanded fiscal space and continued governance reforms,” Purisima said.

Bangko Sentral ng Pilipinas Governor Amando Tetangco, Jr said the decision of Fitch to keep the country’s investment grade recognized the sustained strength of key fundamentals, including the country’s healthy external payments position, stable banking sector, and within-target inflation.

“All of these are anchored on prudent monetary policy and effective supervision of banks and other financial institutions,” Tetangco said.

Convinced that the Philippines deserves a much higher credit rating, Trade Secretary Gregory Domingo said in February that he would seek clarification with London-based Fitch on its seeming reluctance to give the country another upgrade.

“In my own assessment, we have to be upgraded. In fact, 3 notches higher,” Domingo said then.

Fitch Ratings was the last of the 3 ratings agency to give the country a rating of two notches to investment grade. The sovereign credit rating previously gave the country BBB- from BB+.

Moody’s Investors Service raised the Philippines’ credit rating by one notch in December – another manifestation of the country’s economic transformation. The Southeast Asian nation, once considered the region’s economic laggard, was upgraded to “Baa2” from its previous level of “Baa3,” the lowest of Moody’s investment-grade ranks.

In May 2014, S&P further upgraded the Philippines’ credit rating by a notch above the minimum investment grade.

Credit worthy

Fitch noted the country’s strong macroeconomic performance for affirming its credit worthiness.

Remittances and growth of the business process outsourcing (BPO) industry underpin the country’s economic growth, Fitch said.

Fitch also forecasts real gross domestic product (GDP) to grow at 6.3% in 2015 and 6.2% in 2016. The Philippines’ 5-year real GDP growth was estimated to be 6.3% at the end of 2014, which is far above the BBB median of 3.0%. But full-year 2014 GDP growth for the country hit at 6.1%

Fitch also noted that sustained current account surpluses since 2003 have supported the build-up in foreign exchange reserves and turned the country into a net external creditor.

Fitch estimates the country was a net external creditor at 15.4% of GDP at end-2014, compared with the “BBB” median net external debtor position of 4.7% of GDP.

Fitch’s assessment balances declining general government debt ratios against limited progress in widening the government revenue base. Fitch also expects general government debt to reduce further to 34.4% of GDP in 2016 from an estimated 36.4% at the end of 2014.

Sustained fiscal discipline and the propensity of the government to underspend keeps the fiscal deficits low, Fitch noted. The Philippines’ revenue and grants at 15.1% of GDP at end-2014 was much lower than the “BBB” median of 28.6% of GDP.

The country also showed strong credit growth, with abundant domestic liquidity and generally buoyant economic conditions. Growth in credit to the private sector has averaged about 16% over 2010-2014.

Fitch said the weak governance standards and low per capita incomes are still prevalent in the country.

Governance standards as measured by international organizations, such as the World Bank, remain below the “BBB” median for the country. The Philippines continues to score especially low on the World Bank’s Ease of Doing Business and Political Stability metrics, at levels that are far below the “BBB” median.

The Philippines’ per capita income was also low at $2,836 in 2014 compared with the “BBB” median of $10,654.

The aggregate size of the banking system remains moderate, with an estimated bank credit to the private sector at 39.2% of GDP at end-2014, below the “BBB” median of 66%.

The real estate sector is also closely watched as authorities have stepped up their monitoring of risks around it. “This abundance in liquidity has not led to evidence of overheating but it is a risk that bears monitoring over the medium-term,” Fitch said.

The inflation outlook remains close to the central bank’s target range and Fitch also expects that an increase in US interest rates in the near term could ease pressure on domestic liquidity.


Fitch said that risks that could threaten the country’s stable outlook are well-balanced now.

For an upgrade to happen, Fitch noted that the government must continue strengthening its governance standards that leads to a better business climate, which supports higher domestic and foreign investment.

Strong GDP growth, accompanied by narrowing of income and development differentials with “BBB” range peers, without the emergence of imbalances, should also be achieved.

Increasing general government revenue base that lends stability to the government finances is also needed.

However, Fitch cautioned that the country’s credit rating might be downgraded to negative if there is overheating that leads to instability in the financial system over a sustained period.

Reversal in reforms set by the Aquino administration could also lead to a credit downgrade. Foreign investors have expressed concern on whether the next administration would continue the economic policies instituted by the Aquino administration.

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