New York-headquartered Fitch Ratings has affirmed the country’s investment-grade credit rating of ‘BBB’ and revised the outlook to ‘stable’ from ‘negative.’
The sovereign has maintained the investment-grade credit rating from Fitch since December 2017. The revision of the outlook to ‘stable’ from ‘negative’ relates to the country’s strong and resilient economic growth, sound economic policy framework, and comfortable external payments position.
In its statement, Fitch acknowledged the credibility of the central bank’s inflation-targeting framework and flexible exchange rate regime. “Last year’s interventions to mitigate peso volatility have been reversed. Monetary financing to the government during the pandemic was more limited and was reversed more quickly than in some peers,” the credit rating agency said.
Fitch expects “consumer price inflation to moderate to an average of about 4 percent by 2024.”
Based on the latest BSP forecast, inflation is seen returning to the 2 to 4 percent target range in the latter part of the year to average 5.5 percent in 2023 and within the target at 2.8 percent in 2024.
BSP governor Felipe Medalla said the central bank’s “exceptional and timely actions, which include aggressive monetary tightening and the previous temporary financing to the government during the pandemic, have not resulted in adverse side effects on the stability of the financial system. With the Philippine banking sector being liquid and well-capitalized, the central bank stands ready to use all the tools at its disposal to preserve price stability.”
Moreover, Fitch “forecasts the Philippines’ real gross domestic product (GDP) growth above 6 percent over the medium term, considerably stronger than the ‘BBB’ median of 3 percent, after a record outturn of 7.6 percent in 2022, reflecting normalization of activity after the pandemic and the government’s investment program.”
Finance Secretary Benjamin E. Diokno underscored the Marcos Jr. administration’s commitment to maintaining sound macroeconomic fundamentals and achieving its fiscal targets by continuing the course of sound fiscal management.
“Amid a challenging global environment, the Philippine economy has managed to weather the storms and stay the course toward achieving the government’s growth targets of 6 percent to 7 percent for 2023 and 6.5 percent to 8 percent for the years 2024 to 2028.”
Finance Secretary Benjamin E. Diokno
A sovereign investment-grade rating indicates lower credit risk, thus allowing a country to access funding from development partners and international capital markets at lower cost. This enables a country to channel funds that would have otherwise been allotted for interest payments to socially beneficial programs and projects.
A ‘BBB’ rating, a notch above the minimum investment grade, indicates that expectations of default risk are currently low. It also means that the country’s current capacity for payment of financial commitments is considered adequate.
An assignment of a ‘stable’ outlook means Fitch is not likely to change its rating over a one- to two-year period.
