The Philippines failed to muster the so-called second wave of credit upgrades this year from all three global credit watchers as the UK-based Fitch Ratings signaled its unease on the country’s economic prospects. Fitch’s refusal to signal its vote of confidence followed earlier affirmations from two other sovereign credit watchers.
The indecision prompted Finance Secretary Cesar V. Purisima to remark that the Philippines, no matter its many fiscal and monetary policy victories, remain “underrated” by Fitch. Still, Purisima is convinced the Philippine credit story should further improve in upcoming assessments.
Fitch Ratings announced late Tuesday that it has kept the country’s rating at “BBB minus” (or “BBB-”), with a stable outlook. For Fitch, the country’s credit narrative requires more convincing data showing the $272-billion economy deserves a credit boost a few more notches above junk status.
This contrasted sharply against much earlier credit boosts by Moody’s Investors Service and by Standard & Poor’s (S&P) Ratings Services elevating the country’s credit stature two notches above junk status.
Fitch particularly cited the country’s strong macroeconomic performance and the condition of its external sector.
Fitch also noted that Manila’s governance standards and its per- capita income were weak points of the economy even as its public finances remain a neutral factor.
Fitch, likewise, said the steady inflow of worker remittances and growth of the business-process outsourcing (BPO) industry “underpins” the country’s economic growth. Such growth was forecast to grow by 6.3 percent this year and by 6.2 percent in 2016, or below the official target of 7 percent to 8 percent for this year and next year.
Likewise, sustained current account surpluses since 2003 supported the buildup of the country’s foreign-exchange reserves and helped turn the Philippines into a net external creditor for several years in a row already.
But the optimism on external finances and the country’s strong macroeconomic performance was offset by allegedly weak governance standards and the low per- capita income.
“Governance standards have strengthened under the Aquino administration since 2010. However, the Philippines continues to score especially low on the World Bank’s Ease of Doing Business and Political Stability metrics, at levels that are far below the ‘BBB’ median,” Fitch said.
“The Philippines’s per-capita income stood at only $2,836 in 2014 compared against the ‘BBB’ median of $10,654,” Fitch said.
Fitch also said continued strengthening in governance standards that could lead to a better business climate, a strong gross domestic product (GDP) accompanied by a narrowing of income and development and the broadening of the general government revenue base should help push the rating higher going forward.
“Consistently robust growth and macroeconomic fundamentals built over the past four years affirm that the Philippine economic story is defined by sustainability, stability and resiliency. Looking ahead, we expect credit ratings to further improve as the country continues to register even better fundamentals on the back of expanded fiscal space and continued governance reforms,” Purisima said.
A sustained period of overheating that leads to the instability of the financial system and a deterioration in governance standards or reversal of reforms could push the country’s credit stature lower down the line, according to Fitch.
While Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. welcomed this development, Purisima said the Philippines remains a country whose credit stature is underrated by the major sovereign credit watchers.
“The Philippine economy has reached a level of resiliency that is more comfortable than that of its peers, as a result of accumulation of sufficient foreign-exchange buffer, sturdy financial system, and price stability. All of these are anchored on prudent monetary policy and effective supervision of banks and other financial institutions,” Tetangco said.
On the subject of the Philippines as an underrated sovereign, Bank of the Philippine Islands economist Nicholas Antonio Mapa said unless specific deficiencies are addressed, Fitch could stick by its conviction that the sovereign does not deserve an upgrade. “True, our fiscal numbers continue to improve but if this comes at the expense of the failure to address deficiencies such as poor physical infrastructure, further upgrades may not be forthcoming,” Mapa said.
“Improvements in governance standards and tax collection are also needed, as well as an improvement in per-capita GDP…Improvement in our per-capita GDP may take time,” he added.
source: Business Mirror
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