Fitch affirms PH rating, flags overheating risks
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Thu, 20 Dec 2018 17:38:50 +0000
Debt watcher Fitch Ratings on Thursday again affirmed the Philippines’ ‘BBB’ investment grade rating even as it warned that the economy continues to face overheating risks.
“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 in a statement.
The ‘BBB’ is a notch above minimum investment grade while the “stable” outlook means the rating is likely to remain unchanged within next 12-18 months.
“Growth prospects remain favorable, supported by strong domestic demand and increasing infrastructure investment,” Fitch continued.
The ratings agency noted that infrastructure spending was continuing to drive central government expenditure as disbursements for infrastructure and other capital outlays exceeded the target by P38.2 billion in January-September 2018.
In addition, the 2019 draft budget contains a large allocation for infrastructure spending of about 4.7 percent of gross domestic product (GDP), in line with a public investment program that aims to increase public capital expenditures to 7 percent of GDP by 2022.
“However, Fitch believes that overheating risks remain in place, highlighted by rapid credit growth and a widening current-account deficit, although the central bank’s stated intention is to remain vigilant against developments that could affect the inflation outlook,” it said.
Inflation pressures now appear to be easing, partly due to recent monetary policy tightening and easing of some supply-side pressures, it emphasized.
Fitch added that it expected full-year inflation to average 5.2 percent in 2018, declining to within the central bank’s target range of 2.0-4.0 percent in 2019 and 2020 as the cumulative interest rate increases of 175 basis points during 2018 take effect and as the impact of excise tax hikes in 2018 dissipates.
The debt watcher Fitch forecast GDP growth to remain strong in 2019 and 2020 at about 6.6 percent, “supported by robust private consumption and public investment.”
Still, it said growth could come under downward pressure, similar to other countries in the region, from a slowdown in China and escalating trade tensions with the US, and from rising domestic and global interest rates.
The GDP projections fall short of the government’s official growth target of 7-8 percent for 2019 until 2022.
Growth is running below target based on latest data, averaging 6.3 percent as of end-September following first to third quarter outturns of 6.6 percent, 6.2 percent and 6.1 percent, respectively.
Fitch, meanwhile, also noted that the Philippines was maintaining a net external creditor position against the net debtor for the ‘BBB’ median.
“[T]he Philippines is less vulnerable to large outflows compared with some of its neighbors in the region, given lower non-resident holdings of domestic debt and equities, although foreign outflows are likely in 2019 as global monetary conditions continue to tighten,” it added.
Structural indicators, however, continue to lag those of peers in the same rating category as Fitch estimated GDP per capita at end-2018 to reach $3,179, compared with the ‘BBB’ median of $10,657.
“In addition, standards of governance and human development are also weaker than the peer median,” it said, noting that the Philippines ranks in the 41st percentile of the World Bank’s governance indicators, compared with the 58th percentile of the ‘BBB’ median.
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