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MANILA, January 13 – International debt observer Fitch Ratings has maintained the Philippines’ investment grade credit rating of “BBB” with a “stable” outlook, citing the manageable fiscal situation despite the COVID-19 crisis. and favorable growth prospects amid a falling number of confirmed COVID-19 daily cases.
“BBB” is one step above the minimum investment grade, while a “stable” outlook indicates the absence of factors that could trigger a rating adjustment in the short term.
By maintaining its credit rating, the Philippines continues to stand out in the international financial community amid a wave of negative credit rating actions, which resulted from the adverse impacts of the pandemic on the performance and credit profiles of many economies.
In 2020, Fitch implemented 51 credit rating downgrades that affected 33 sovereigns (some sovereigns were downgraded more than once). These include countries that previously had the same rating as the Philippines, such as Mexico, Colombia and Italy, whose ratings were lowered one level to the minimum investment grade of “BBB-”.
In a report released Monday, Fitch noted that the Philippines has “modest levels of public debt relative to its peers, strong external buffers and still strong medium-term growth prospects.” Fitch also said that it expects an economic recovery in the coming quarters for the Philippines, putting its gross domestic product (GDP) growth projection at 6.9 percent for this year and 8.0 percent for next year.
In response to Fitch’s decision, two of the Philippines’ top economic officials welcomed the affirmation of the Philippine credit rating, which is an acknowledgment of the strength of the COVID response measures in the country, as well as the robust Philippines fundamentals in the pandemic and a strong medium-term growth trajectory.
Finance Secretary Carlos G. Domínguez said: “The affirmation of the Philippines ‘BBB’ rating with a ‘stable’ outlook shows that the country has remained credible and investment worthy during the global COVID-19 crisis.” .
He added: “This is primarily because our strong economy under Duterte’s watch gave us enough fiscal space to cope with the unprecedented economic and health crises. Second, there is a whole-of-government approach to saving lives, protecting communities and livelihoods, and helping families, workers, and businesses hardest hit. Third, we continue our commitment to prudent fiscal and debt management even as we begin to spend heavily on COVID-19 response measures to jumpstart the economy and restore business and consumer confidence. “
“As soon as the pandemic hit in early 2020, the Duterte administration devised and led the swift passage by Congress of twin legislation (Bayanihan 1 and 2) designed to bolster our healthcare infrastructure, extend the largest emergency subsidies. to poor families and displaced workers, and would provide relief to companies, especially micro, small and medium-sized enterprises (MIPYMES), ”said Domínguez.
“In addition, the government is also working with Congress on the rapid approval of the Corporate Recovery and Tax Incentives for Companies Act (CREATE). This and the bill on the Strategic Transfer of Financial Institutions (FIST), which has been approved by Congress, are intended to stimulate economic activity and accelerate the country’s recovery from the global growth slump driven by the pandemic, ”he added .
He said that pending the implementation of a mass vaccination program, the government has begun to relax mobility restrictions to further open the economy in a calibrated way, thus allowing companies to resume or expand their operations and increase spending on the consumers.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said: “We appreciate Fitch’s understanding of Philippine credit and macroeconomic direction amid the global pandemic we all face. For our part, the BSP was one of the first central banks in the world to respond to the crisis with a policy rate cut as early as February last year. We considered it important to signal to the market that we were ready to act quickly and decisively to maintain market confidence, as well as to guarantee sufficient liquidity and efficient operation of the financial system ”.
“We implemented a long list of response measures, including some unprecedented, such as the counting of loans to micro, small and medium enterprises (MSMEs) as part of compliance with the legal reserve, in a way that was swift and decisive. The BSP, Together with the rest of the government, he did his homework last year, we can see better days ahead as we wait for the distribution of anti-COVID vaccines in the country, ”said the head of the central bank.
According to the latest government projections, the Philippine economy will go from recession in 2020 to growth of 6.5 and 7.5 percent this year and between 8 and 10 percent next year. The growth will be supported by government spending, with an approved national budget of P4.506 trillion, which is 10 percent higher than last year and equivalent to 21.8 percent of GDP.
At the end of December 2020, the allocations released for Bayanihan I and II, which provide financial support to health system improvements and vulnerable sectors, such as frontline companies and MSMEs (micro, small and medium enterprises), amounted to P500,700 million.
The CREATE bill, which will be the nation’s largest stimulus package for businesses, will require cuts in corporate income tax and streamlining the country’s tax incentive system. It is already pending bicameral deliberations by Congress following separate moves by the Lower House and Senate to pass their own version of the bill.
The FIST bill, which has been approved by both houses of Congress and is currently being reviewed by the Office of the Presidency prior to President Rodrigo Duterte’s signature, will help banks dispose of sour assets. This will help ensure that the banking system remains healthy despite a potential increase in nonperforming loans, which in turn could result from the adverse impact of the crisis on the ability of some borrowers to pay their debts on time.
Meanwhile, measures to contain the spread of the virus and improve the capacity of the health system have shown positive results. On January 10, the Department of Health reported that active COVID cases in the Philippines had dropped to 20,038, which is the lowest in six months and a death rate of 1.93 percent (significantly lower than average. world). Additionally, weekly data from the World Health Organization (WHO) shows that daily confirmed COVID cases and deaths in the Philippines have been on a downward trend since September 2020.
“The new COVID-19 cases registered daily have been declining in recent months, reflecting an effective government response to the crisis and reducing the risk of renewed blockades. The authorities have also been involved in multilateral initiatives and with several pharmaceutical companies to ensure vaccines, and a launch is expected from May 2021, ”Fitch said.
Fitch also acknowledged that “the Philippines’s external finances remain a credit strength,” citing gross international reserves that are expected to remain equivalent to 9 to 10 months of imports and other external payments this year and next. This compares with international standards, which suggest that a GIR for at least three months of import coverage is sufficient.
The debt watcher also expects the Philippine banking system to remain stable, with sufficient provisions from banks to allow them to absorb any potential credit losses arising from the crisis.
The affirmation of the Philippines’ credit ratings by various debt watchers since last year has been beneficial, especially in relation to their efforts to fund COVID recovery measures. Favorable credit ratings help a sovereign (or any borrowing institution) access financing at a lower cost. (IRO)
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