PH fails to get upgrade from Fitch; officials say PH 'underrated'


Posted at Apr 08 2016 06:26 PM

Philippines failed to get a credit rating upgrade as the London-based Fitch Ratings placed the country's rating at the minimum investment grade of BBB-.

But economic managers say Philippines remains "underrated," as the Fitch investment-grade rating is the lowest among scores assigned to the Philippines by a host of credit rating agencies.

Finance Secretary Cesar Purisima said that despite the new rating, Philippines "continues to outshine" other economies.

"We believe that we are still underrated by at least a notch. The Philippines continues to outshine similarly rated peer sovereigns amid global volatility. Likewise, we continue to outperform with better fundamentals and robust domestic drivers of growth," he said.

The Philippines credit rating of Baa2 with Moody's Investors Service, and its BBB rating with Standard & Poor's, NICE Ratings, and R&I are one notch higher than the rating assigned by Fitch.

Philippines' credit rating of BBB+ with Japan Credit Rating Agency is two notches higher than the rating assigned by Fitch.

Purisima said sustainability of Philippines' economic trajectory remains "unmistakable," as he emphasized government reforms.

"We've had a solid 6-year run of growth and stability as the world's most upgraded sovereign. But as they say, the biggest room in the world is the room for improvement. With another upgrade in the offing, the onus for continuity looms larger than ever," Purisima added.

Amando Tetangco Jr., governor of the Bangko Sentral ng Pilipinas (BSP), meanwhile said Philippines is expected to continue enjoying an inflation environment and a financial system supportive of robust economic growth.

"There are many pockets of policy continuity in government that will help achieve long-term sustainability of the country's economic gains. The BSP, which enjoys policy independence and fiscal autonomy from the national government as enshrined in law, has put in place sound frameworks for monetary policy and bank supervision," Tetangco said.

"Guided by these frameworks, and together with its flexibility in adjusting policy settings to deal with modern-day challenges, the BSP will continue to help provide an enabling environment for robust and stable economic growth," he added.

According to the managers, the rating given by Fitch reflects significant discrepancy with how financial markets actually assess the credit worthiness of the country.

Fitch assigns a higher credit rating of BBB to Colombia, and an even higher rating of BBB+ to Thailand and Mexico.

The Philippines' debt burden is also more manageable compared with countries with higher credit ratings. Its general government debt as a percentage of gross domestic product (GDP) settled at 36.8 percent, better than Colombia's 44.4 percent, Panama's 40.6 percent, Mexico's 44.6 percent, Spain's 99.1 percent, and Italy's 133.3 percent.

Panama is rated a notch higher by Fitch at BBB while Mexico, Spain, and Italy are rated two notches higher at BBB+.

Investor Relations Office executive director Editha Martin said a credit rating upgrade from Fitch is overdue as the existing rating has been in place since March 2013.

"A wide range of administrative and legislative measures implemented over the past six years will help institutionalize sound governance and economic policies over the long term," Martin said.


Fitch continues to assign a "positive" outlook indicating a possible credit-rating upgrade within the next 12 to 18 months.

In its report on the Philippines, Fitch recognized favorable factors that have upward influence on the country's credit rating. These include robust economic growth, declining debt burden, stable banking sector, and strong external payments position.

"External finances are a ratings strength. The Philippines has been running current account surpluses since 2003, with average of around 3 percent of GDP for the period 2011-2015. This has been helped by the steady remittance inflow and has led to a buildup in foreign exchange reserves," Fitch said.

The credit watchdog noted that the Philippines' net external creditor position estimated at 14 percent of GDP is much stronger compared with the net debtor position of 4.6 percent for peers within the BBB category.

Fitch likewise acknowledged the effectiveness of the BSP in helping keep the country's banking sector stable.

"Active supervision and regulation by a risk-aware central bank, which has progressively strengthened risk management requirements for the banks over the years, help to temper the risks from high credit growth," Fitch said.

It pointed out the low average income and level of development of the Philippines is a credit weakness.

The debt watcher said the country's GDP per capita of $2,860 last year was lower than the 'BBB' median of $9,253.

It added the governance standards in the country have continued to strengthen since 2010 under the current administration of President Aquino, especially government effectiveness and political stability as measured by World Bank's governance metrics.

"Presidential elections on 9 May 2016 will see a change of administration as Aquino is constitutionally barred from seeking re-election. It remains to be seen whether the next administration will preserve or extend the improvements in this area seen under Mr. Aquino's stewardship," it said.

Fitch expects the Philippines' growth momentum to continue and expects real GDP growth to average around six percent over 2016-17 from 5.9 percent between 2011 and 2015.