Continued reforms could lead to upgrade
The Philippines is one of several emerging Asian economies viewed by Fitch Ratings as less vulnerable to external risks in the coming year.
Given its positive outlook on the country, the debt watcher reiterated that the continuation of reforms by the next government—national elections will be held in May 2016 —could lead to a ratings upgrade.
Fitch in 2013 was the first to give the Philippines an investment grade. The outlook on the “BBB-“ was upgraded to positive last September, which means an upgrade is likely in the next 12 to 18 months.
In its “2016 Outlook: Emerging Asia Sovereigns,” the ratings firm said dollar strength in the context of an expected rise in US interest rates, still-sluggish global trade growth and lower commodity prices posed a challenging set of circumstances for the region in 2016.
“Any upward pressure on regional interest rates emanating from the US is likely to be a drag on domestic demand, given the fact that private-sector credit has risen rapidly or is at high levels, or both, for a number of emerging Asian sovereigns, particularly including China, Malaysia, Thailand and Vietnam,” it said.
But the Philippines, together with Bangladesh and India, looks less exposed to the conjunction of risks identified, which Fitch said was reflected in the positive outlook it assigned to country’s investment grade rating.
“The Philippines’ positive outlook is driven by a steady strengthening in the country’s structural fundamentals, improvements captured in international measures of governance standards and international competitiveness and reflected in Philippines’ strong macroeconomic performance,” the debt watcher said.
Strong growth, a structural current account surplus and ongoing fiscal policy discipline are driving a steady improvement in the Philippines’ balance sheet, it added.
Going forward, Fitch said “increased confidence that these trends will be sustained under the next administration after the 2016 presidential elections would support the case for an upgrade.”
Last week, the debt watcher affirmed its positive outlook on the Philippines and indicated that an upgrade could be announced based on the following:
• evidence that an improvement in governance standards can be sustained following a change in government;
• continued strong economic growth without the emergence of imbalance; and
• a broadening of the general government revenue base that would lend greater stability to government finances.
Negative sensitivities, on the other hand, were identified as:
• a deterioration in governance standards and/or reversal in reforms; and
• instability in the financial system, possibly triggered by a sustained period of excessive credit growth.