Philippine economy

Duterte’s economic team still upbeat despite Fitch’s negative outlook

Ralf Rivas

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Duterte’s economic team still upbeat despite Fitch’s negative outlook

Angie de Silva/Rappler

In the face of economic risks, the Department of Finance and the Bangko Sentral ng Pilipinas emphasize that the Philippines maintains its investment grade status

President Rodrigo Duterte’s economic managers remain optimistic on the economy despite debt watcher Fitch Ratings issuing a negative outlook on Monday, July 12.

The Department of Finance (DOF) and the Bangko Sentral ng Pilipinas (BSP) issued a joint statement, highlighting the decision of Fitch to maintain the country’s rating of BBB, a notch above the minimum investment grade.

However, an outlook revision from stable to negative reflects risks that may lead to a downgrade in the much-prized investment rating, which lowers borrowing costs of both the Philippine government and private companies.

“Although the negative impact of the pandemic on the Philippines has been significant, this will only be temporary. In fact, the economy is already en route to a solid recovery path and is seen to have posted double-digit growth in the second quarter of this year amid the fast-track implementation of the vaccine rollout and economic recovery measures,” Finance Secretary Carlos Dominguez III said.

The economic team projects gross domestic product (GDP) to grow 6% to 7% in 2021 and 7% to 9% in 2022. Debt watchers and multilateral lenders, however, see lower growth.

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“These upbeat growth projections take into account the continued relaxation of mobility restrictions, higher spending on COVID response and economic recovery programs, and the faster rollout of the mass vaccination program. We target to achieve ‘population protection’ by having 70 million Filipinos, or 100% of our adult population, inoculated by the end of this year,” Dominguez added.

Fitch earlier noted that the vaccination target is quite ambitious, given that only less than 3% of the population have been fully vaccinated as of end-June.

Meanwhile, BSP Governor Benjamin Diokno expects the impact of the pandemic to be “transitory.”

“On the part of the BSP, we are helping realize this through our long list of COVID-response measures, including monetary actions that have helped maintain liquidity in the financial system at a critical time,” Diokno said.

“We will continue to support the economy as needed, mindful of the negative consequences of premature disengagement of our response measures. Moreover, our financial digitalization agenda should help move the Philippines to new heights. Faster payments processes and accessibility of financial products and services through digital means will help push economic growth and financial inclusion moving forward,” he added.

The DOF and the BSP emphasized that since the pandemic started in early 2020, 36 sovereigns have been downgraded by Fitch, while 31 are on the negative outlook as of June 2021.

“Neighboring and rating peer countries of the Philippines that were either downgraded or assigned a negative outlook by Fitch include: Malaysia (from A- to BBB+); Mexico and Italy (from BBB to BBB-); India (from BBB- stable to BBB- negative); and Peru (from BBB+ stable to BBB+ negative),” they said.

Fitch said on Monday that it revised its outlook due to the Philippines’ high COVID-19 cases continuing to scar the economy, ballooning debt levels and weakened fiscal finances, and soured loans.

However, the debt watcher noted that there were “green shoots” of recovery, including the resiliency of remittances and exports, the government’s ongoing push for tax reform, as well as the BSP’s continued monetary support.

Fitch expects full-year GDP growth of 5% percent in 2021, much lower than the estimate of Duterte’s economic team.

Fitch said these are the factors that could result in a credit rating downgrade:

Public finances: A sustained rise in the government debt-to-GDP ratio associated, for example, with a reversal of reforms or departure from a prudent macroeconomic policy framework that leads to sustained higher fiscal deficits.

Macroeconomy: Weaker medium-term macroeconomic prospects combined with diminishing policy credibility that could lead to the removal of the +1 notch in the macro pillar of the Qualitative Overlay that has been in place to reflect strong and sustainable levels of projected GDP growth over the medium term, combined with a sound policy framework.

External indicators: Deterioration in external indicators, including foreign-currency reserves, the current account deficit, and net external debt, which lowers the resilience of the economy to shocks. –

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Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.