Continued improvements beyond next year’s national elections would keep the Philippines on track to an upgrade, Fitch Ratings indicated on Thursday as it reiterated a “positive” outlook for the country.
In its fourth quarter Asia Pacific Sovereign Overview, the debt watcher said its outlook reflected gains achieved during the presidency of Benigno Aquino 3rd whose six-year terms ends next year.
“Evidence that such improvement can be sustained beyond the next election cycle would be positive for the credit,” Fitch said.
Positive sensitivities with regard to the country’s rating, it said, include:
• 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.
Fitch last September upgraded the Philippines’ outlook to positive from stable, seen as an indication of a possible upgrade in the next 12 to 18 months.
The Philippines, which is rated at the lowest investment grade of “BBB” by Fitch, is expected to grow by 5.6 percent this year, in line with expectations that the government will miss its 7 percent to 8 percent target.
Gross domestic product (GDP) growth as of the end of the third quarter was 5.8 percent and the government has said the full-year result would most likely hit 6 percent.
Last year, the economy expanded by 6.1 percent.
This 2015 forecast for the Philippines, Fitch said, is comfortably above the median of “BBB” rated peers.
“GDP expanded 6 percent year-on-year in the third quarter of 2015, thanks to robust domestic demand. However the strength of household consumption has also been reflected in import volumes, providing a substantial drag on growth,” it noted.
Fitch said the government deficit could be narrower than its forecast of 1.7 percent of GDP, noting a small budget surplus in August 2015 before the fiscal position returned to a shortfall in September.
“Expenditure has been at a lower rate than incorporated in Fitch’s assumption,” it said.
Fitch also took note of developments in funds sent home by overseas Filipino workers, saying that remittances in US dollar terms rose by 4.3 percent in September in a bounce-back from the first negative reading since 2003 in August.
“Remittances from the Middle East and Asia recovered strongly following weakness in August, despite weak growth in those regions. Remittances growth was even stronger in Philippine peso terms, following the depreciation of some foreign currencies against the dollar in recent months,” it said.