March 27 () - (The following statement was released by the rating agency)
Fitch Ratings upgraded the Philippines' Long-Term
Foreign-Currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+'. The Long-Term
Local-Currency IDR has been upgraded to 'BBB' from 'BBB-'. The Outlooks on both
ratings are Stable. The agency has also upgraded the Country Ceiling to 'BBB'
from 'BBB-' and the Short-Term Foreign-Currency IDR to 'F3' from 'B'.
Key Rating Drivers
The upgrade of Philippines' sovereign ratings reflects the following factors:
-The Philippines' sovereign external balance sheet is considered strong relative
to 'A' range peers, let alone 'BB' and 'BBB' category medians. A persistent
current account surplus (CAS), underpinned by remittance inflows, has led to the
emergence of a net external creditor position worth 12% of GDP by end-2012, up
from 6% at end-2010. Remittance inflows were worth 8% of GDP in 2012 and proved
resilient even through the shock of the global financial crisis. Fitch expects a
rising import bill stemming from strong domestic demand to lead to a narrower
CAS and to stabilise the net external creditor position at a strong level
through to 2014.
-The Philippine economy has been resilient, expanding 6.6% in 2012 amid a weak
global economic backdrop. Strong domestic demand drove this outturn. Fitch
expects GDP growth of 5.5% in 2013. The Philippines has experienced stronger and
less volatile growth than its 'BBB' peers over the past five years.
-Improvements in fiscal management begun under President Arroyo have made
general government debt dynamics more resilient to shocks. Strong economic
growth and moderate budget deficits have brought the general government (GG)
debt/GDP ratio in line with the 'BBB' median. The sovereign has taken advantage
of generally favourable funding conditions to lengthen the average maturity of
GG debt to 10.7 years by end-2012 from 6.6 years at end-2008. The foreign
currency share of GG debt has fallen to 47% from 53% over the same period.
-Favourable macroeconomic outturns have been supported in Fitch's view by a
strong policy-making framework. Bangko Sentral ng Pilipinas' (BSP) inflation
management track record and proactive use of macro-prudential measures to limit
the potential emergence of macroeconomic and financial imbalances is supportive
of the credit profile. Inflation has been in line with 'BBB' peers on average
over the past five years.
-Governance standards, as measured in international indices such as the World
Bank's framework, remain weaker than 'BBB' range norms but are not inconsistent
with a 'BBB-' rating as a number of sovereigns in this rating category fare
worse than the Philippines. Governance reform has been a centrepiece of the
Aquino administration's policy efforts. Entrenching these reforms by 2016 is a
policy priority of the government.
-The Philippines' average income is low (USD2,600 versus 'BBB' range median of
USD10,300 in 2012), although this measure does not account directly for the
significant support to living standards from remittance inflows. The country's
level of human development (as measured in the United Nations Development
Programme's index) is less of an outlier against 'BBB' range peers.
-The Philippines had a low fiscal revenue take of 18.3% of GDP in 2012, compared
with a 'BBB' range median of 32.3%. This limits the fiscal scope to achieve the
government's ambition of raising public investment. The recent introduction of a
"sin tax", against stiff political opposition, will likely lead to some
increment in revenues and underlines the administration's commitment to
strengthening the revenue base.
The main factors that could lead to a positive rating action, individually or
-Sustained strong GDP growth that narrows income and development differentials
with 'BBB' range peers. An uplift in the investment rate that enhances growth
prospects without the emergence of macroeconomic imbalances.
-Broadening of the fiscal revenue base, as well as further improvements in the
structure of the Philippine sovereign debt stock.
The main factors that could lead to a negative rating action, individually or
-A reversal of reform measures and deterioration in governance standards.
-Sustained fiscal slippage, leading to a higher fiscal debt burden.
-Deterioration in monetary policy management that allows the economy to
-Instability in the banking sector, leading to a crystallisation of contingent
liabilities on the sovereign balance sheet.
The ratings and Outlooks are sensitive to a number of assumptions.
The agency assumes the Aquino administration will persist with its fiscal,
governance and social reform agenda.
Fitch estimates trend GDP growth for the Philippines in a range of 5%-5.5%.
The ratings incorporate an assumption that the Philippines is not hit by a
severe economic or financial shock sufficient to cause a significant contraction
in GDP and trigger stress in the financial system. Fitch assumes that there is
no materialisation of severe risks to global financial stability that could
impact emerging market economies, such as a breakup of the euro zone or a severe
economic crisis in China.