Fitch Ratings has lowered its GDP growth forecast for the Philippines to 6.3 percent this year from its previous estimate of 6.9 percent as it sees a tempered recovery due to limited fiscal space.

However based on its latest “APAC Sovereign Credit Overview” for the second quarter, Fitch expects a higher GDP growth for 2022 of 8.3 percent versus its previous forecast of eight percent.

The Philippines currently has a “BBB” rating with a “stable” outlook from the UK credit watcher, still noting the country’s “modest” government debt, hefty external buffers and a “still-strong medium-term growth prospects, notwithstanding the deep pandemic-induced economic contraction (of -9.3 percent GDP in 2020), against relatively low per capita income and indicators of governance and human development compared to peers.”

Fitch lowered its GDP 2021 forecast due to the rise in COVID-19 cases and return to stricter containment measures.

It noted that while the Philippines entered the health crisis with fiscal buffers, these buffers "have been eroded significantly by the pandemic shock” and they expect the government debt-to-GDP ratio to rise to 52.3 percent and 55 percent of GDP in 2021 and 2022, respectively.

Fitch said other negative sensitivities include: sustained rise in the government debt-to-GDP ratio; failure to resume historically high economic growth rates after pandemic shock subsides; and deterioration in external indicators.