Fitch lifts PH outlook to positive

Fitch Ratings on Thursday lifted the ratings outlook for the Philippines to positive from stable, a signal that the debt watcher may upgrade the country’s credit score within the next 12 to 18 months.

Fitch which granted a credit rating of BBB-, the minimum investment grade, on the Philippines in March 2013, recognized the economy’s strong growth performance and its ability to confront external headwinds better than most emerging markets.

“Global competitiveness, as ranked by the World Economic Forum, has risen to a level comparable to ‘BBB’-rated peers. Indicators for corruption, transparency and economic freedom have also improved substantially. Evidence that governance improvements can be sustained beyond the next election cycle would be positive for the credit,” Fitch said.

It said economic growth continued to outperform ‘BBB’-rated peers while favorable demographics would support the medium-term growth outlook.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the positive outlook from Fitch “signaled the long overdue credit rating upgrade, which appropriately reflects the economy’s outperformance.”

Finance Secretary Cesar Purisima said the revised credit outlook and the likely credit rating upgrade reflected what financial markets said all along about the Philippines’ creditworthiness.

“The Philippine economy continues to perform strongly despite turbulent headwinds, while financial markets continue to assess Philippine debt way better than what a BBB- rating reflects. We thank Fitch for coming out with a positive outlook. While we still think we are underrated [we continue to outperform our single-A rated neighbors in Southeast Asia], this is definitely a move in the right direction,” Purisima said.

Fitch predicted that gross domestic product of the Philippines would grow 5.6 percent in 2015, as domestic demand remained robust even as external demand weakened. The Philippines’ total dependency ratio is projected to fall over the next three decades, in contrast to most other ‘BBB’-rated peers and other economies across the region.

Fitch said external finances continued to be key credit strength for the country. The Philippines has run current account surpluses since 2003, underpinned by high levels of worker remittances and revenue from the business process outsourcing industry.

“Fitch expects the current account surplus to narrow to 3.5 percent in 2015, but high enough for the country to reinforce its position as a net external creditor. Fitch expects the Philippines’ strong external finances will provide resilience against potential shifts in global investor sentiment, for example following the tightening of US monetary policy,” it said.

It said low per capita incomes were a structural weakness. It said the country’s GDP per capita income at $2,836 in 2014 was low compared with the ‘BBB’ median of $10,654.

It said while gross national income per capita was higher due to relatively large inflows of remittances from overseas Filipino workers, it was still below ‘BBB’ peers.

Fitch said there could be positive rating action in the coming months if the improvement in the governance standards over the Aquino administration could be sustained following a change in government.

“The rating outlooks are positive. Hence, Fitch does not anticipate a material probability of negative action over the forecast period. However, the main factors that could see the ratings revert to stable outlook are deterioration in governance standards or a reversal in reforms that were implemented under the Aquino administration,”  it said.

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