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Fitch Ratings lowers PHL growth outlook

FITCH RATINGS lowered its economic growth projection for the Philippines this year, as it sees the country struggling to contain a renewed surge in coronavirus disease 2019 (COVID-19) infections.

In a note on Tuesday, Fitch Ratings said it now expects Philippine gross domestic product (GDP) to grow by 6.3% this year, slower than the 6.9% estimate it gave in January.

This is also below the government’s 6.5% to 7.5% target, and the most pessimistic outlook compared with those earlier given by S&P Global Ratings (7.9%), and Moody’s Investors Service (7%).

“We have revised down our growth projection for 2021 as daily COVID-19 infections have been on the rise lately, necessitating the imposition of lockdown measures in the National Capital Region and certain neighboring provinces,” Sagarika Chandra, director of sovereigns in the Asia-Pacific region at Fitch Ratings said in an e-mail.

The Philippines has recorded over a million COVID-19 cases since the pandemic began last year. The Health department on Tuesday reported 7,204 new infections, with the number of active cases at 71,675.

Metro Manila as well as Bulacan, Cavite, Laguna and Rizal are under a modified enhanced community quarantine until April 30.

“South and southeast Asian economies are struggling with a resurgence of the virus — especially in the Philippines and India — that, combined with weak tourism prospects and slow vaccine rollouts, is weighing on recovery or posing risks,” Fitch said in a note on Tuesday.

Fitch said there are disparities in the recovery of Asia-Pacific economies, with those in north Asia, Australia and New Zealand faring better than South and Southeast Asian countries.

“We expect APAC growth to rebound to 7.2% in 2021 from last year’s contraction of 0.9%,” it said, noting growth momentum in China and a rebound in India.

Meanwhile, Fitch raised its 2022 growth projection for the Philippines to 8.3% from 8%. Ms. Chandra said this is widely due to base effects.

Fitch said failure to bring back the country’s pre-pandemic “high economic growth rates” could be a factor in a possible downgrade of the Philippines’ credit rating.

It also warned against a sustained rise in government debt-to-GDP ratio caused by a reversal of reforms from a prudent macroeconomic policy framework it had established before the crisis. This could lead to sustained higher fiscal deficits, Fitch added.

The Philippines had a relatively low general government debt-to-GDP ratio of 34.1% in 2019 compared with the 42% median among its BBB-rated peers, but buffers have already been “eroded significantly” due to the pandemic, the ratings company said.

“We expect the general government debt-to-GDP ratio to rise to 52.3% and 55% of GDP in 2021 and 2022, respectively, which would still be slightly below the projected peer median of 57.3% and 59.4%, respectively, although this is a substantial increase from the 2019 level,” Fitch said.

Another risk for downgrade is a deterioration of external indicators such as dollar reserves, current account deficit, and net external debt, as these factors contribute to the country’s resilience to shocks, it added.

In January, Fitch kept the country’s “BBB” rating. A stable outlook has also been retained, indicating the rating could be unchanged for the next 18-24 months.

“The affirmation of the Philippines’ ‘BBB’ rating with a stable outlook balances modest government debt 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 and indicators of governance and human development compared to peers,” it said.

On the other hand, upside risks to the country’s credit rating includes improvement in the government’s revenue base and a boost in governance standards to make it nearer its rated peers’ median. — Luz Wendy T. Noble

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