The raging pandemic and the economic contraction have not made a dent in the Philippines’ credit worthiness. Foreign credit rating institutions have kept their confidence on the ability of the country to repay its debt.
Fitch Ratings affirmed in January 2021 the Philippines’ investment grade score of “BBB” with a stable outlook, citing the country’s resilience amid the global pandemic and strong growth outlook that may hit around 6.9 percent in 2021 and 8 percent in 2022.
“The affirmation of the Philippines’ ‘BBB’ rating and ‘stable’ outlook balances modest government debt levels relative to peers, robust external buffers and still-strong medium-term growth prospects, notwithstanding the deep pandemic-induced economic contraction, against relatively low per capita income levels and indicators of governance and human development compared to peers,” Fitch said.
It said the economic impact of the pandemic for the Philippines in 2020 was more significant than it had previously expected because of the local infection rate and government policy measures to curb the spread of the virus.
Fitch said efforts to contain the virus severely affected private consumption and investment, resulting in real gross domestic contracting by 10 percent year-on-year in the first nine months of 2020. It said full-year GDP likely contracted by 8.5 percent in 2020 (the economy shrank 9.5 percent last year), after accounting for an improvement in activity indicators in the fourth quarter.
Fitch said economic activity might continue to recover in the coming quarters. It projected GDP to expand by 6.9 percent and 8.0 percent in 2021 and 2022, respectively.
“We estimate the general government deficit to have widened to 6.9 percent of GDP in 2020 from 1.2 percent of GDP in 2019. We project the deficit to widen further to 7.7 percent in 2021, before narrowing to 6.6 percent in 2022. Underlying the projections for 2021 are a central government deficit of 8.7 percent of GDP, up from an estimated 7.5 percent of GDP in 2020, as government expenditure aimed at supporting economic recovery is likely to remain high,” it said.
The wider deficits, it said, reflected the authorities’ policy response to COVID-19 under their four-pillar socio-economic strategy.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said he appreciated Fitch’s understanding of the Philippines’ credit and macroeconomic direction amid the global pandemic. “For our part, the BSP was among the first central banks in the world to respond to the crisis with a policy rate cut as early as February last year. We deemed it important to signal to the market that we were ready to act swiftly and decisively to buoy market confidence, as well as to ensure sufficient liquidity and efficient functioning of the financial system,” Diokno said.
Finance Secretary Carlos Dominguez III said the affirmation of the Philippines’ “BBB” rating with a stable outlook showed that the country remained credit and investment-worthy throughout the global COVID-19 crisis.
“This is because, first, our strong economy on the Duterte watch gave us enough fiscal space to deal with the unprecedented health and economic crises. Second, there is a whole-of-government approach in saving lives, protecting communities and livelihoods, and providing relief to the hardest hit families, workers, and businesses,” Dominguez said.
Japan Credit Rating Agency in June even upgraded the Philippines’ credit rating by a notch from BBB+ to A-, citing the country’s resilience amid a pandemic that has slowed down growth, impaired fiscal positions and hurt credit ratings of economies across the globe.
JCR assigned a “stable” outlook on the new rating, which indicates that the “A-” would be maintained over the near term. JCR said the decision came on the back of its assessment that the impact of the COVID-19 crisis on the domestic economy and the government’s fiscal standing would be temporary, given the country’s strong fundamentals going into the crisis, the massive relief measures and the pursuit of important legislation such as the Corporate Recovery and Tax Incentives for Enterprises Act under the Comprehensive Tax Reform Program.
Diokno said JCR’s assignment of an A- rating to the Philippines reflected the agency’s confidence that the Philippines was pursuing appropriate policies to help Filipino individuals, businesses and the economy at large to recover from the unprecedented crisis.
While we have temporarily veered our attention away from the Road to A agenda because our focus at the moment is on saving lives, jobs, and livelihoods, we welcome positive assessments from international observers like JCR. We hope this helps to uplift the Filipino spirit at this trying time and to inspire us to work harder together to emerge stronger after the pandemic, Diokno said.