Recto says the Philippines is still on track to achieve an ‘A’ credit rating

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE PHILIPPINES is still on track to achieve its goal of achieving an “A” rating status, Treasury Secretary Ralph G. Recto said.

This after Fitch Ratings affhas set the country’s long-term default rating to ‘BBB’ and maintained its ‘stable’ outlook.

“Yes, as expected. We are on our way to an A rating. Better credit will help us create more jobs and reduce poverty by 2028,” said Mr Recto Business in a Viber message.

In a June 7 commentary, Fitch Ratings said affaffirmed the Philippines’ “BBB” rating and maintained its “stable” outlook.

A “BBB” rating indicates low default risk and reflects the economy’s adequate ability to service debt. Meanwhile, a ‘stable outlook’ means that the outlook is likely to be maintained rather than downgraded or upgraded over the next 18 to 24 months.

Fitch cited the Philippines’ “strong medium-term growth, which supports a gradual reduction in public debt/gross domestic product (GDP) over the medium term, and the large size of the economy compared to ‘BBB’ peers.”

“The rating is limited by low GDP per capita, despite an upward trend. Governance standards are weaker than ‘BBB’ peers, although Fitch believes the World Bank’s Governance Indicator scores slightly exaggerate this,” it added.

The Philippine economy grew 5.7% in the United States Ffirst quarter, better than the 5.5% in the previous quarter.

The government is targeting growth of 6 to 7% this year, although Fitch expects Philippine GDP growth to average 5.8% this year.

“We forecast real GDP growth of over 6% over the medium term, significantly stronger than the ‘BBB’ median of 3%, supported by major infrastructure investment and reforms to promote trade and investment, including public-private partnerships (PPPs). ”

Meanwhile, Fitch noted the government’s latest revisions to its fiscal consolidation targets, which saw both revenue and expenditure programs scaled back.

“We believe there is some risk of further fiscal slippage given the government’s continued focus on economic growth and the impending midterm elections in May 2025,” the rating agency said.

Fitch also expects inflation to average 3.8% this year, within the target range of 2-4% but above the central bank’s full-year 3.5% expectation.

In a separate statement, Budget Secretary Amenah F. Pangandaman said Fitch’s assessment of strong growth prospects in the country is a welcome development.

“We hope to maintain our momentum for growth and maintain our lead as one of the fastest growing economies in Southeast Asia,” she said.

Meanwhile, Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., noted that the debt watcher has maintained its rating even during the pandemic.

“This rightFRead the Philippines’ improved economic and credit fundamentals, as well as improvements in the economy FThe performance of recent years could help attract a greater number of international investments and international credits at much lower costs and with better conditions in the country,” he said in a Viber message.

Mr Ricafort said Fitch’s latest credit rating shows signs of the country’s resilience and improved investor scamsFidentity.

This was also correctFElected by the lower credit risk premium in the Philippines’ latest global bond issuance, he added.

The Philippine government raised $2 billion from the double-tranche issuance of dollar bonds in May.

The Treasury Department previously said it was able to secure financing at very cheap rates due to the country’s “exceptional performance beyond current creditworthiness.”

On the other hand, Ateneo de Manila University economics professor Leonardo A. Lanzona said the latest rating action is “nothing to worry about.”

“Although it meets the minimum score for almost all forms of investment agency, it indicates a certain increased level of risk. In this period of high uncertainty and increased protectionism, this rating does not provide any benefit to countries vying for more investment, especially in the Southeast Asian region,” he said in an email.

“The figure only reflects a good financial reputation, but does not include complementary attention to the real sector where growth should now radiate. Even this without a strong and stable real sector FThe financial status will undoubtedly weaken,” he added.

Mr Lanzona also said the country is unlikely to achieve an ‘A’ rating unless there is “comprehensive industrial reform and structural transformation”.

The government aims to achieve an ‘A’ level rating by 2028 or the end of the Marcos administration.

In 2019, the Finance Department and Bangko Sentral ng Pilipinas organized an interagency committee on the “Road to A Credit Rating Agenda.”

In addition to Fitch’s latest rating action, the Philippines currently has investment grade ratings of “Baa2” from Moody’s Ratings and “BBB+” from S&P Global Ratings. Both have also assigned a ‘stable’ perspective to their ratings.