Fitch retains Philippines’ investment grade and stable outlook

PHILIPPINES - In Brief 10 Jun 2024 by Diwa Guinigundo

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After reporting that “Philippine bank asset quality and earnings will be supported by a robust economy over the next two years” last April 2024, Fitch Ratings affirmed the Philippines’ investment grade rating of BBB, a notch above the minimum investment grade. The country’s stable outlook was also retained. This rating action is significant. It recognizes the economy’s resiliency despite the serious economic scarring of the pandemic a few years ago and the narrowing of the fiscal space. It also means the Philippines performed well in attaining respectable economic growth, moderating inflation and mitigating some weaknesses in public finance. Fitch is cautiously optimistic that the Philippines would succeed in growing by 5.8% for 2024 despite last year’s anemic growth due to the fading public expenditure on the pandemic and high price pressure that impinged on private consumption and investment. The credit rating agency projects that El Niño would affect agriculture, power and water supply. La Niña is also expected to be problematic starting the second half of this year through next year. To achieve such growth expectation, Fitch expects larger investment in infrastructure and reforms to foster trade and investment, including renewed interest in public-private partnership (PPP). But Fitch also argues that “there is some risk of a further fiscal slippage given the government’s continued focus on economic growth and the approach of mid-term elections in May 2025.” The credit watcher notes that the Philippine government had already raised the budget deficit projection for 2024 to P1.5 trillion or 5.6% of GDP from the previous level of P1.4 trillion. The challenge is from t...