"Economic recovery has actually begun in the second quarter and it should continue in the succeeding months after last year’s deep contraction."
Fitch Ratings’ move this week to downgrade its credit rating outlook on the Philippines to negative is hardly surprising. The pandemic battered the economy last year and left millions of Filipinos jobless as a result of local measures that restricted the movement of the population.
The government debt has risen as a percentage of the gross domestic product as the Philippines scrambled to get foreign loans to address COVID-19 and provide funding assistance to those displaced by the pandemic. With reduced economic activities, the government’s revenue collections also declined.
Fitch’s negative outlook on the Philippines’ ‘BBB’ credit rating from ‘stable’ could lead to the eventual debt downgrade in the following months. But such a credit rating downgrade is not written in stone. The Philippine still could keep its “BBB” investment credit rating once economic conditions improve and the government achieves its herd immunity objective by the end of the year.
There are strong indications that the economy is already on the mend as shown by improving trade figures, reduced unemployment rate and a jump in the manufacturing index. Even Fitch in its assessment on the Philippine economy recognized the emerging “green shoots of recovery” and the resilience of the country’s remittances and exports.
Remittances rose 4.8 percent in the first four months of 2021 while Philippine exports climbed 21.5 percent in the first five months. Increased remittances fuel the spending of dependents left by the country’s overseas workers in the Philippines, while higher exports mean more were employed in the manufacturing sector.
Fitch also believes the economy will grow 5 percent this year, predicting economic growth will strengthen to 6.6 percent in 2022 and 7.3 percent in 2023.
The continued relaxation of mobility restrictions and the faster rollout of the mass vaccination program to protect 70 million Filipinos, or 100 percent of the adult population, are certain to restore the vigor of the economy. Economic recovery has actually begun in the second quarter and it should continue in the succeeding months after last year’s deep contraction.