Fitch Ratings has affirmed the Philippines' credit rating at "BBB," which stands a notch above the minimum investment grade, and maintains the outlook on the rating as "stable."
According to Fitch, it continues to view the central bank’s inflation targeting framework and exchange rate regime as credible. I Image: www.solvencyiiwire.com I Gideon Benari, Flickr
Since December 2017, the Philippines has consistently held a "BBB" credit rating from Fitch. The agency revised its outlook on the rating from "negative" to "stable" on May 22, 2023.
Fitch's recent decision acknowledges the country's strong medium-term growth prospects, gradually declining debt, macroeconomic stability, and sound economic policies.
According to Fitch, it continues to view the central bank’s inflation targeting framework and exchange rate regime as credible.
Since May 2022, the BSP’s Monetary Board has increased the policy rate by a total of 450 basis points to 6.5 percent to bring inflation back to within the government’s target range of 2.0 to 4.0 percent. In October this year, the Philippine Statistics Authority (PSA) reported that year-on-year headline inflation slowed to 4.9 percent from 6.1 percent in September.
Fitch anticipates inflation to moderate to 3.5% by 2025
BSP Governor Eli M. Remolona, Jr. stated, “We welcome Fitch’s recognition of the work being done by the central bank to bring inflation back to within the target range. The BSP will remain data-dependent in managing inflation expectations to avoid the second-round effects of supply shocks."
Meanwhile, Fitch projects the Philippines’ real gross domestic product to grow above 6.0 percent over the medium term, supported by large infrastructure investments as well as trade and investment reforms.
The PSA reported that the Philippine economy rebounded strongly in the third quarter of 2023 with a growth of 5.9 percent, mainly due to the recovery in government spending. Furthermore, Fitch expects the country’s general government debt to decline to 54.0 percent of GDP in 2025 after peaking slightly above this level from 2023 to 2024.
An investment-grade rating indicates lower credit risk, enabling the country to access funding at lower costs from development partners and international capital markets. This allows the redirection of funds, which would have been used for interest payments, to socially beneficial programs and projects.
A ‘BBB’ rating signifies that expectations of default risk are currently low, indicating that the country’s current capacity for payment of financial commitments is considered adequate.
Moreover, an assignment of a “stable” outlook means Fitch is not likely to change its rating over a one- to two-year period.