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Credit Rating Agency Upgrades Philippines' Credit Rating to BBB

by: Sidney Liquigan

Friday, January 12, 2018 |

In December 2017, credit rating agency Fitch Ratings upgraded the Philippines' long-term foreign-currency issuer default rating (IDR) to BBB, from last March's BBB-, with a stable outlook, as reported by Rappler.

The credit rating upgrade and positive outlook are due to the country's consistent economic performance and tax reform programs, including the newly-implemented Tax Reform for Acceleration and Inclusion (TRAIN) law, which are "supporting high sustainable growth rates," as Fitch noted.

Fitch also added that "investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment," denoting that the current administration's controversial war on drugs has not affected investor confidence. According to Fitch, "there is no evidence so far that incidents of violence associated with the administration's campaign against the illegal drug trade have undermined investor confidence."

For 2018 and 2019, the credit rating agency forecasts a 6.8% real GDP growth, securing the country's position in the fastest growing economies in the Asia-Pacific region.

Finance Secretary Carlos Dominguez III also noted that "Fitch is finally convinced that the Philippine economy now is much stronger and more resilient than in 2013, when they granted the Philippines its first investment grade credit rating of BBB-."

Further, Dominguez also added that "our growth prospects are also brighter compared with those of our neighbors and peers. The Duterte administration is fast-tracking crucial structural reforms – including the Comprehensive Tax Reform Program, the bold infrastructure development agenda, and liberalization of the investment regime. All this will help accelerate economic expansion, spread development, and increase income in lagging regions."

Fitch assessed that the TRAIN law will be net revenue positive, while Socioeconomic Planning Secretary Ernesto Pernia believes that the law would further improve economic growth. According to him, "this tax reform package will boost the country's revenue-to-GDP ratio, fund the Build, Build, Build program, and also increase the spending capacity of the poor and the working Filipino."

Meanwhile, Fitch also expects the country to face a deficit in 2018 and 2019, although manageable at around less than -0.5% of GDP and can be partially offset by remittance inflows and BPO receipts.

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