Debt-watcher Fitch Ratings affirmed the Philippines’ investment grade status, but with a negative outlook as global economic environment remains uncertain.

In a statement on Thursday, Oct. 27, Fitch Ratings kept Manila's long-term foreign-currency issuer default rating (IDR) at "BBB" which was a notch above minimum investment grade and a negative outlook.

“The Negative Outlook reflects risks to Philippines' medium-term growth prospects, fiscal adjustment path and external buffers in an environment of higher interest rates, weaker external demand and higher commodity prices,” Fitch said.

“The "BBB" rating balances strong growth, external finances and a credible economic policy framework against lagging structural indicators, including per capita income and governance, relative to peers,” it added.

For 2022, the ratings agency expects the country’s gross domestic product (GDP) to grow 6.8 percent, driven by strong domestic demand, normalization of economic activity, and the government’s investment program.

Fitch’s growth forecast, however, is within the Marcos administration’s target of 6.5 percent to 7.5 percent for this year.

“Our forecast assumes a slowdown from 2H22 amid monetary tightening, high imported inflation and weaker global demand. Output will exceed pre-pandemic levels in 2H22 and is close to potential,” Fitch said.

Fitch also expects growth to slowdown next year at 5.5 percent before recovering to 6.2 percent the following year.

“Downside risks include global growth falling below Fitch's forecasts of 1.7 percent in 2023 and 2.8 percent in 2024, or the Philippine central bank raising policy rates beyond our assumption of 5.25 percent,” Fitch said.

“Further growth risks stem from potential economic scarring from the pandemic, in particular, due to learning losses,” it added.

On fiscal consolidation, Fitch said it expects the national government’s budget deficit to fall to 8.0 percent of GDP in 2022 and 6.3 percent by 2024.

The Marcos administration, which took office last June, continues to target consolidation, projecting a fiscal deficit of 5.1 percent of GDP by 2024, from 7.6 percent in 2022.

“Planned gains in revenue and spending efficiency may not be realized. The success of the consolidation will also depend on the resilience of economic growth in the face of fiscal tightening, and we understand that economic development is the government's main priority,” said Fitch.