By Luisa Maria Jacinta C. Jocson, Senior Reporter
FITCH RATINGS affirmed the Philippines’ investment grade rating and kept its “stable” outlook amid the country’s strong growth prospects and minimal exposure to trade tensions.
In a rating motion commentary on Tuesday, the credit rater said it affirmed the Philippines’ long-term foreign currency issuer default rating at “BBB,” which indicates low default risk and reflects the economy’s adequate capability to pay debt.
The debt watcher also kept the outlook on the rating at “stable,” which suggests it’s more likely to be maintained fairly than lowered or upgraded over the following 18-24 months.
“The ‘BBB’ rating and ‘stable’ outlook reflect the Philippines’ strong medium-term growth, which supports a gradual reduction in government debt-to-GDP, and the big size of the economy relative to ‘BBB’ peers,” it said.
Nevertheless, Fitch said that is “constrained by low GDP (gross domestic product) per head, despite an upward trend. Governance standards are weaker than those of ‘BBB’ peers, though Fitch believes World Bank Governance Indicator (WBGI) scores somewhat overstate this.”
Fitch expects the Philippines’ GDP to grow by 5.6% this yr, below the federal government’s 6-8% goal.
It noted Philippine economic growth is being driven by “large public investments in infrastructure, services exports and remittance-funded private consumption.”
“Private demand ought to be supported by easing inflation and rates of interest. Nevertheless, domestic political uncertainty could affect investment, while global trade tensions will likely drag on growth, specifically not directly through weaker global demand,” it added.
Real GDP growth continues to be expected to expand to over 6% within the medium term, Fitch said.
“Our forecast reflects a payoff from investments in infrastructure and a series of structural reforms in recent times to liberalize the economy and foster trade and investment, including through public-private partnerships.”
“Technological change poses risks to the Philippines’ large outsourcing sector, even though it is adapting,” it added.
Meanwhile, the credit rater also noted the Philippines is comparatively unaffected by global trade uncertainties, citing its lower reciprocal tariffs compared with its neighbors.
“The Philippines is a comparatively closed economy, with goods exports of only about 12% of GDP in 2024, mostly electronics and machinery, based on balance of payments statistic. Over 16% of products exports were to the US.”
The US slapped a 17% reciprocal tariff rate on the Philippines, which was the second lowest in Southeast Asia. Nevertheless, this higher tariff has been suspended until July.
Fitch said the relatively lower US duties could possibly be a bonus compared with its regional peers.
“The Philippines’ terms of trade may gain advantage from lower commodity prices or diversion of Chinese exports,” it added.
The debt watcher also cited the country’s “success in taming inflation” and expects further monetary easing this yr.
“We expect consumer price inflation to stay around 2% in 2025-2026, on the lower certain of the central bank’s goal range,” it said.
“We proceed to view the central bank’s inflation-targeting framework and versatile exchange-rate regime as credible,” it added.
BSP Governor Eli M. Remolona, Jr. welcomed Fitch’s reaffirmation of the country’s credit standing and stable outlook.
“The BSP took actions to assist keep inflation manageable and promote sustainable economic growth. The BSP will proceed to accomplish that,” he said in an announcement.
Inflation averaged 2.2% in the primary quarter, well inside the central bank’s 2-4% goal.
“Monetary financing of the fiscal deficit throughout the pandemic was limited and reversed more quickly than in some peers. The federal government’s response to the commodity-price shock was measured, for instance, in resisting calls for widespread fuel subsidies,” in keeping with Fitch.
Fitch expects a slower fiscal consolidation path, given the “government’s overriding give attention to growth and a less permissive domestic political environment.”
The federal government is targeting to steadily bring down its deficit-to-GDP from 5.3% this yr to three.7% in 2028.
Fitch sees the country’s general government deficit narrowing to three.6% next yr and its central government deficit hitting 4.6% by 2026.
The final government debt-to-GDP ratio can also be seen to stay mostly unchanged at 54% to 55% from 2025 to next yr.
“Strong nominal GDP growth and narrowing fiscal deficits contribute to our forecast of a downward path for presidency debt-to-GDP over the medium term,” it added.
Meanwhile, Fitch also said the Philippines’ current account deficit will remain “broadly unchanged” from this yr to 2026.
“Strong domestic demand, partly related to public infrastructure development, will proceed to drive import growth, offset by lower hydrocarbon import prices and growth in remittances and repair exports.”
Fitch also cited aspects that might individually or collectively result in a negative rating motion, resembling the failure to keep up stable debt-to-GDP levels; reduced confidence in medium-term economic growth; and a deterioration in foreign currency reserves.
Then again, aspects that might support an upgrade are sustained reductions in the federal government’s debt levels, stronger-than-anticipated economic growth and the strengthening of governance standards, amongst others.
The BSP said the Fitch investment grade rating “signals low credit risk and inexpensive access to funding.”
“This permits a rustic to allocate funds to socially useful initiatives and programs,” it added.
