Any deterioration in the Philippines's per-capita income, already low by global standards, and the state of governance that foreign observers rate as weak, could revert the country’s hard-won sovereign rating to below investment grade, a credit watcher said on Thursday.
UK-based Fitch Ratings said while the economy accelerated the past several quarters, the speed of development has proven asynchronous with the income of the average Filipino, his earnings nowhere near the level enjoyed by similarly rated peers in the region.
In its July report on the Asia-Pacific Sovereign Credit Overview, Fitch said while the country’s per- capita gross domestic product (GDP) based on market exchange rates is slowly rising, it remains one of the lowest among similarly rated peers at only around $3,000 in 2014. This compares with per-capita GDP averaging $11,000 among “BBB-” rated sovereigns. This was also below the average per-capita income of “BB-” rated countries reporting income in excess of $4,000. As an investment-grade economy, Fitch rates the Philippines a triple B minus (“BBB-”) with a stable outlook, indicating an economy with good credit quality and a low default risk. A rating lower in the scale indicates a country whose credit quality is rated speculative with an elevated vulnerability to default.
The other major downside risk to the country’s rating is its poor governance, with the deterioration in governance standards cited as a key rating pull-down.
Fitch also said the country’s fiscal revenues remain low at only around 19 percent of its GDP versus the “BBB” median of 33 percent in 2014.
Meanwhile, stronger business climate and fiscal revenue base, and a sustained level of strong output expansion without imbalances may drive the country’s key rating upward.
“A steady inflow of overseas Filipino remittances, growth in the business process outsourcing industry, and low interest rates, continue to buoy growth,” Fitch said.
“Continued current account surpluses over 3 percent of GDP have turned the Philippines into a large net external creditor,” it added.
Macroeconomics and external finances were seen as the country’s strength while structural issues were dubbed its weakness. Public finances meanwhile remained neutral.
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