Grade affirmed; outlook upgraded
The country’s growth is further supported by the steady improvement of our labor and employment conditions
Photo by Yummie Dingding
Credit watchdog Fitch Ratings maintained the country’s two-notches above investment grade or “BBB” while raising its outlook from “negative” to “stable.”
“The improved outlook for the Philippines to ‘stable’ is a testament to the country’s robust macroeconomic fundamentals, as evidenced by the economy’s strong growth performance in 2022 at 7.6 percent and 6.4 percent in the first quarter of 2023,” Finance Secretary Benjamin Diokno said following yesterday’s release of Fitch’s report.
According to the report, the revision of the outlook to “stable” reflects Fitch’s improved confidence in the Philippines’ return to strong medium-term growth after the Covid-19 pandemic, sustained reductions in the country’s debt-to-GDP ratio, and the country’s sound economic policy framework.
Double the median
Fitch also issued a forecast that growth will reach above six percent over the medium term, higher than the median ‘BBB’ growth rate of 3.0 percent.
“Fitch’s latest rating action reflects the strong economic activity which can be fostered by the improved investment climate in the country. The country’s growth is further supported by the steady improvement of our labor and employment conditions,” Diokno added.
A rating of “BBB” sits above the minimum investment grade and suggests that expectations of default risk are low. It also indicates the ability of the country to meet its financial commitments.
With the reconstitution of the Economic Development Group, the government said it will ensure that the body co-chaired by Diokno and National Economic and Development Authority Secretary Arsenio M. Balisacan will shepherd economic growth through fast-tracking the implementation of infrastructure projects and mitigating the impact of global uncertainties.
The government also helps in maintaining the country’s sound macroeconomic fundamentals with the creation of the Inter-agency Committee on Inflation and Market Outlook, which aims to intensify the timely implementation of direct measures to curb persistent inflation by addressing supply issues, strengthening ground monitoring, and ensuring affordable and reliable energy supply.
Improving debt level
Despite a slight increase in the debt-to-GDP ratio, Fitch expects the government’s borrowing levels to decline due to strong nominal GDP growth and narrower fiscal deficits.
The agency projects the general government debt-to-GDP ratio to decline to about 52 percent by 2024, in line with the ‘BBB’ median.
The country’s external creditor position remains favorable, with comfortable financing through long-term external borrowing and foreign direct investment.
In terms of macroeconomic stability, Fitch expects consumer price inflation to moderate to around 4 percent by 2024, within the Bangko Sentral ng Pilipinas’ target range.
The agency views the central bank’s inflation-targeting framework and flexible exchange rate regime as credible. The government’s response to the commodity price shock has been measured, with prudent policies implemented to manage the impact.
“We will continue to rely on structural reforms that will broaden opportunities and enhance the country’s productivity, particularly through higher investments in infrastructure. The full implementation of the six-year Medium-Term Fiscal Framework will support these investments while promoting fiscal sustainability,” Diokno said.
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