The Philippines' economy remains strong and will face a low risk of defaulting on its credit obligations. Credit watchdog Fitch Ratings maintained the country's investment grade rating at "BBB" with a stable outlook after noting its robust medium-term growth potential and stable debt level.
"The 'BBB' rating and Stable Outlook reflect the Philippines' strong medium-term growth, which supports a gradual reduction in government debt/GDP (gross domestic product) over the medium term and the large size of the economy relative to 'BBB' peers," Fitch Ratings said.
In addition, the credit ratings agency forecasts the Philippine economy to expand by 5.8% this year, higher than the 5.5% gross domestic product (GDP) recorded in 2023.
"We forecast real GDP growth of above 6% over the medium term, considerably stronger than the 'BBB' median of 3%, supported by large investments in infrastructure and reforms to foster trade and investment, including public-private partnerships," it said.
Fitch also noted that the general government deficit will likely narrow to 3.8% of GDP by 2025.
"This is consistent with narrowing the budgetary central government deficit to 5.4%of GDP by 2025, from 6.2% of GDP in 2023 to 7.3% of GDP in 2022. The high deficits reflect the authorities' focus on fostering economic growth and development," Fitch Ratings noted.
The report also acknowledged the country's stable debt levels and strong macroeconomic policies.
Fitch expects the general government debt to remain stable at 54% of GDP by 2025, alongside a narrowing current account deficit. The debt watcher also sees the current account deficit decreasing to under 2% of GDP, or below $10 billion, by 2025.
Fitch likewise acknowledged the central bank's inflation-targeting framework.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr., in a statement on Saturday, welcomed Fitch's recognition of the central bank's efforts to keep inflation within target and highlighted the BSP's data-driven approach to setting monetary policy.
Since May 2022, the BSP has raised the policy rate by 450 basis points to 6.5% to bring inflation within the government's target range of two to 4%.
Headline inflation rose slightly to 3.9% in May from April's 3.8%. The national average for January to May 2024 was 3.5%, down from 6.1% in May 2023.
Fitch projects inflation to remain within the upper half of the BSP's inflation target range and to moderate to 3.% and 3.4% by 2024 and 2025, respectively.
The BSP said an investment-grade rating signals reduced credit risk, allowing countries to access lower-cost funding.
A "BBB" rating, which is above the minimum investment grade, indicates a low expectation of default risk, with the country's capacity to meet financial commitments deemed adequate. A "stable" outlook suggests a low likelihood of a rating change over the next one to two years.
The Philippines has been rated "BBB" since December 2017.
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