Fitch Ratings revises PH outlook to ‘Negative’

Fitch Ratings has revised the Philippines’ outlook to “Negative” from “Stable” due to the national government’s weakening fiscal finances brought about by the prolonged coronavirus pandemic.

Fitch Ratings Building

In a statement released Monday evening, July 12, the London-based credit rater cited the increasing risks to the country’s credit profile from the impact of the pandemic.

Fitch Ratings added that the pandemic may have aftermath effects on the country’s policy-making as well as economic and fiscal out-turns.

However, Fitch Ratings maintained its “BBB” credit rating for the country, which is one notch above the minimum investment grade.

“Fitch believes there are downside risks to medium-term growth prospects as a result of potential scarring effects, and possible challenges associated with unwinding the exceptional policy response to the health crisis and restoring sound public finances as the pandemic recedes,” it said.

The Philippines has been hit particularly hard by the COVID-19 pandemic as the economy contracted by 9.6 percent in 2020. In the first-quarter this year, gross domestic product (GDP) declined by 4.2 percent.

Fitch expects the local economy will grow by only 5.0 percent in 2021, mainly due to “low base effects.” This forecast is below the government’s target of 6.0 percent to 7.0 percent.

“Fiscal finances have weakened, both in absolute terms and against peer medians, as a result of the pandemic,” Fitch noted.

Based on the rating agency’s assumptions, the Philippines’ general government debt-to-GDP would rise to 52.7 percent and 54.5 percent in 2021 and 2022, respectively.

Fitch said the projected debt-to-GDP ratio is “modestly below the corresponding 'BBB' medians of 57.0 percent and 58.7 percent.”

The rising in the debt ratio of the government from 34.1 percent in 2019 “is large and exceeds the median increase for 'BBB' peers.”

“Fitch will monitor the evolution of the fiscal deficit and debt levels, as the balance between fiscal consolidation and ongoing government spending to support economic recovery will be an important consideration for the rating,” it said.