Category : Press Release
Date : May 07, 2020
Agency : Investor Relations Office
Title : Fitch affirms Philippines' 'BBB' rating; changes outlook to 'stable'
Article : Fitch ratings has affirmed the Philippines’ rating at “BBB” and changed the outlook to "stable" from "positive" as the world continues to grapple with the COVID-19 pandemic.

A "stable" outlook indicates that the Philippines’ rating will likely be maintained over the next 18-24 months.

The pandemic has resulted in a wave of unfavorable credit rating actions worldwide. For the first four months of this year, Fitch has downgraded the rating of 21 sovereigns and assigned negative outlook to the rating of 25 countries out of 119 countries that it rates.

In response to Fitch's latest assessment of the Philippines, the country's top economic officials acknowledged that the Philippines, just like many countries across the globe, is confronted with one of the most difficult challenges to mankind in recent history – the COVID 19 pandemic. They, however, stressed that the country was in a strong position going into this crisis and has built buffers that are helping mitigate the impact on the economy.

"Structural reforms and sound economic management over the years have provided us with monetary and fiscal space to safeguard lives and support livelihoods at this critical time," Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said.

"The BSP's long list of prompt and decisive policy support measures--including the cumulative 125 basis points (bps) cut in the policy rate and the 200 bps reduction in the reserve requirement ratio so far this year--shows that we have been putting our elbow room to good use," Diokno added.

Moving forward, Diokno assured that the BSP stands ready to use its full range of policy tools to help address the impact of the coronavirus pandemic on the domestic economy.

For his part, Department of Finance (DOF) Secretary Carlos Dominguez has noted that: "The Philippines is in a good fiscal position to deal with the unprecedented challenges posed by this contagion that has brought the global economy to the cusp of a recession."

Dominguez said "the government is capable of meeting the huge financial requirements of its COVID-19 response because of the prudent macroeconomic and fiscal management policies set in place by President Duterte since he assumed office in 2016. These policies plus comprehensive tax reforms have resulted in a well-balanced debt management strategy and improved revenue streams that now allow the Duterte administration to fund massive healthcare and livelihood support to save Filipino lives and protect our communities without fear of a debt blowout."

"We are working with the Congress, the business community, and the rest of the private sector to build on the initial success of the government's policies by pursuing initiatives such as further investment liberalization and the remaining tax reform packages to lead our country to the path of a quick post-pandemic recovery and sustained high--and inclusive--growth," he added.

Acting National Economic and Development Authority (NEDA) Secretary Karl Kendrick Chua said: “The buffers that the Philippine economy had at the start of the COVID-19 crisis plays an important role in our ongoing efforts to address the pandemic and its effects on lives and incomes."

Meantime, while the government is implementing a wide range of relief and mitigating measures, it is prudent to also now come up with a plan on how to restart our economy over the near term. The objective is to help Filipinos, businesses, and the overall economy bounce back once the pandemic subsides, Chua added.

NEDA heads the Inter-agency Task Force Technical Working Group for Anticipatory and Forward Planning (IATF-TWG-AFP) that is drafting a COVID-19 recovery plan for the Philippines. Details of the plan are being vetted and will be announced soon. The recovery plan will identify measures that will help revitalize industries, create jobs, and sustain economic growth.

The recovery plan is the fourth pillar of the Philippines' socio-economic strategy against COVID-19. The first pillar is the provision of emergency support to vulnerable sectors and individuals. The succeeding pillars are the provision of expanded medical resources and protection of frontline healthworkers, and the fiscal and monetary measures to finance emergency initiatives and keep the economy afloat. The strategy has a combined value of 29.3 billion US dollars or 8 percent of GDP.

In its report on the Philippines released on Thursday, Fitch said the revision of the rating outlook from "positive" to "stable" took into account the adverse economic effects of COVID-19 and the enhanced community quarantine.

Fitch also said the affirmation of the "BBB" rating "reflects the Philippines' fiscal and external buffers, including its low debt-to-GDP ratio compared to peer medians and net external creditor position, as well as its still-strong medium term growth prospects."
Taking into account the impact of the pandemic, Fitch projects the Philippine economy to register a mild contraction of 1 percent this year. In the succeeding years, nonetheless, Fitch expects the Philippines to return to its growth trajectory. Its baseline scenario shows the Philippine economy growing by 7 percent in 2021.

Meantime, the Secretary of Finance has noted that the approach credit rating agencies have taken in assessing sovereign credit worthiness at this time of the pandemic bodes well for the Philippines' ratings.

In their credit rating reviews at this time, debt watchers look at a country's policy space in addressing the pandemic. They also assess whether the impact on a sovereign is temporary and may be reversed soon or if it will lead to structural changes that will persist.

On this basis, countries that have entered the crisis with buffers--such as fiscal and monetary space, as well as strong external position--will see their resilience play an important role in keeping their ratings intact even at this challenging time, Dominguez said.