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'Stable' Fitch tag for PHL bares cracks in economy.

THE Philippine economy will have to work harder to get an upgrade from one of the major credit watchers in the world, as cracks in the economy linger behind its strong numbers.

Details of Fitch Ratings's recent assessment of Philippine economic dynamics showed that the international ratings agency gave the country's 'BBB' rating a 'stable' outlook as the positive developments in the economy squarely outweigh some of the Philippines's unimproved metrics.

A stable outlook means there is little possibility of a change in the rating-whether for an upgrade or a downgrade-in the next 12 to 18 months.

'The ratings on the Philippines balance favorable growth prospects, lower government debt and a net external creditor position against lower per-capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers,' Fitch said.

Strong growth prospects but low per-capita income

The ratings agency said the Philippines's growth prospects remain favorable, supported by strong domestic demand and increasing infrastructure investment.

Fitch forecasts the local economy to 'remain strong' in 2019 and 2020 at around 6.6 percent for both years, as supported by robust private consumption and public investment.

While the forecast is still below the 7-8 percent target range growth of the government for the coming years, it signals an improvement of growth from the latest 6.1-percent print in the third quarter of 2018.

Nonetheless, Fitch said that, while the macroeconomy enjoys a strong GDP number by print, ordinary Filipinos are still not reaping the rewards of high economic growth.

'The Philippines's structural indicators continue to lag those of peers in the same rating category,' the credit watcher said.

Fitch estimates GDP per capita at end-2018 to reach $3,179, compared with the BBB median of $10,657.

Lower govt debt but lower standards of governance

In terms of government debt, Fitch said indicators point to a steady debt-to-GDP number for the Philippines for next year.

'Fitch expects the budget deficit to remain within manageable levels of around -3 percent of GDP in 2019 and 2020, as revenue should rise alongside the increase in government expenditure,' the credit watcher said in its report.

'The agency therefore expects the government debt-to-GDP ratio to remain broadly stable at 37 percent by 2020, compared with an estimated 37.5 percent in 2018,' it added. This arises from Fitch's expectation that expenditures from the country's infrastructure ramp-up will rise alongside revenues given new tax laws.

However, Fitch noted that the standards of governance and human development are also weaker compared to the average ranking of those in the same rating category of BBB.

The Philippines, in particular, ranks in the 41st percentile of the World Bank's governance indicators, compared with the 58th percentile of the BBB median.

External creditor position but weak local business environment

Fitch also said that among the strengths of the Philippine economy is that it maintains a net external creditor position against the BBB median's net debtor position.

'In addition, the Philippines is less vulnerable to large outflows compared with some of its neighbors in the region, given lower nonresident holdings of domestic debt and equities,' Fitch said.

Back home, however, Fitch noted that the Philippines's local business environment remains weak.

Fitch noted that the Philippines slipped by 11 notches in the recent World Bank's Ease of Doing Business Index rankings.
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Publication:Business Mirror (Makati City, Philippines)
Geographic Code:9PHIL
Date:Dec 24, 2018
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