Fitch affirms Philippines BBB rating but revises outlook to negative from stable


Posted at Jul 12 2021 10:51 PM

MANILA - Fitch Ratings affirmed its investment-grade rating for the Philippines on Monday but also revised its outlook for the country to negative from stable, indicating the credit rating may be lowered in the medium term or 1-2 years. 

Fitch affirmed its BBB rating for the Philippines, signaling that the country has a moderate level of risk of defaulting on its obligations. 

“The rating affirmation reflects the Philippines' robust external buffers and projected government debt levels that, while rising, should remain just below the median for 'BBB' rated peers,” Fitch said.

But Fitch also noted “increasing risks to the credit profile from the impact of the pandemic and its aftermath on policy-making as well as on economic and fiscal out-turns.”

The debt watcher noted that the Philippines’ fiscal finances weakened, both in absolute terms and against peer medians, as a result of the pandemic. 

It forecasts general government debt-to-GDP to rise to 52.7 percent and 54.5 percent in 2021 and 2022, respectively. 

While Fitch said that this was still “modestly below the corresponding 'BBB' medians of 57 percent and 58.7 percent, “the rise in the debt ratio from 34.1 percent in 2019 is large and exceeds the median increase for 'BBB' peers.” 

The fiscal deficit also widened to 5.4 percent of GDP in 2020, Fitch said citing preliminary official estimates, from 1.7 percent in 2019. 

“Fitch will monitor the evolution of the fiscal deficit and debt levels, as the balance between fiscal consolidation and ongoing government spending to support economic recovery will be an important consideration for the rating,” it said. 

It also noted uncertainties stemming from the presidential elections next year, and the fiscal impact of the Mandanas Ruling, which mandates increased revenue transfers from the central to local government units. 

Fitch said that the effects of the ruling will be felt in 2022, and be fiscally neutral at the general government level. But it also warned that poor execution of the transfer of funds and responsibilities could lead to underspending by local governments.

Recent reforms in corporate income taxes meanwhile are still not certain to boost revenue over the medium term, Fitch said. 

The debt watcher also warned that the Bangko Sentral’s lending to the government to finance the budget deficit could pose a risk to policy credibility if this continues “beyond the immediate needs of the health crisis.”

Fitch meanwhile said the Philippines' external finances remain a credit strength. 

“Foreign-currency reserves are high and gross external debt levels are manageable.” 

Last May, S&P Global Ratings also affirmed the Philippines’ investment-grade credit rating of BBB+ with a stable outlook, saying the country’s economy was beginning to recover from the disruptions of the COVID-19 pandemic. 

S&P however also warned that it “may lower the rating if the Philippines' nascent economic recovery falters over the next 24 months.” 


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