Reuters logo
Fitch Affirms the Philippines at 'BBB-'; Outlook Positive
March 29, 2017 / 11:05 AM / 6 months ago

Fitch Affirms the Philippines at 'BBB-'; Outlook Positive

(The following statement was released by the rating agency) HONG KONG, March 29 (Fitch) Fitch Ratings has affirmed the Philippines' Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' with a Positive Outlook. The ratings on the Philippines' senior unsecured foreign and local-currency bonds are also affirmed at 'BBB-' and 'F3'. The Short-Term Foreign- and Local-Currency IDRs are affirmed at 'F3'. The Country Ceiling is affirmed at 'BBB'. KEY RATING DRIVERS The Philippines' ratings reflect its continued strong and consistent growth performance, a robust net external creditor position and government debt levels that are lower than the median of peers in the 'BBB' rating category. The ratings remain constrained by relatively weak governance standards, a narrow government revenue base, and levels of per capita income and human development that are below the 'BBB' median. The rating action reflects the following factors: The Philippines' strong economic growth is a rating strength. Real GDP grew by 6.8% in 2016, up from 5.9% in 2015, supported by continued strong growth in private consumption spending and investment. Private consumption was supported by the reliable inflow of remittances, which comprised about 10% of GDP and grew by around 5% in 2016. Growth in investment spending was driven by a pick-up in infrastructure investment. Sustained strong performance of the business process outsourcing (BPO) sector also remained supportive of employment and domestic demand. The Philippines' average real GDP growth for the five years to end-2016 was 6.6%, well above the 'BBB' median of 3.2%. Fitch expects the economy to sustain its strong growth momentum, with GDP forecast to increase by 6.8% and 6.7% in 2017 and 2018, respectively. Fitch forecasts inflation to increase to 3.3% in 2017, up from 1.8% at end-2016, but remain within the central bank's target of 2%-4%. The Philippines in May 2016 elected Rodrigo Duterte as its new president. The president's election campaign focused on improving law and order and promoting social justice, and he has maintained those priorities since taking office. Macroeconomic performance has remained strong despite the increase in incidents of violence associated with the administration's campaign against the illegal drug trade while domestic political stability has been maintained. Fitch will continue to monitor the impact of the president's campaign against drugs on economic performance, financing flexibility and capital flows. In terms of the broader policy agenda, the new administration has adopted a 10-point socio-economic plan, which signals broad continuity of policies under the previous administration. The Philippines is a strong net external creditor. The Philippines' current account has been in surplus since 2003, which has led to a steady increase in its foreign-exchange reserves and supports its net external creditor position. At end-2016, the Philippines net external creditor position was close to 13% of GDP, compared with the 'BBB' median of a net debtor position of 0.7% of GDP. However, the Philippines' current account narrowed significantly to 0.2% of GDP at end-2016 from 2.5% at end-2015. This was primarily due to an increase in capital goods imports and sluggish export growth, which led to a sharp increase in the trade deficit. Fitch expects the current account to move into a modest deficit over 2017-2018 as increased spending on infrastructure is likely to drive strong growth in capital-goods imports. The Philippines' current account will, however, remain supported by a steady inflow of remittances, which increased by about 5% in 2016, and strong growth in services receipts related to the BPO industry. Further, Fitch estimates that foreign-exchange reserves will continue to cover close to 8 months of current external payments over 2017-2018. Philippines' net external creditor position and healthy reserve position represent effective buffers against external shocks. The Philippine central bank's monetary and exchange rate policies are effective. The Bangko Sentral ng Pilipinas has been able to maintain inflation at modest levels, and the foreign exchange managed-float regime allows the peso to act as a cushion against external shocks, as evidenced by the downward adjustment in the currency following portfolio outflows in 2016. The upcoming transition to a new central bank governor will be important in the context of policy stability and credibility. The government's debt remains below the 'BBB' median. Fitch expects the Philippines' fiscal deficit to widen in 2017-2018 to around 3% of GDP from 2.4% of GDP in 2016. As a result, Fitch expects the government debt-to-GDP ratio to increase modestly over this period, although over the medium-term this ratio is forecast to gradually decline. The expectation of a wider fiscal deficit primarily reflects the government's plan to increase spending on infrastructure. The authorities in 2016 revised the deficit ceiling to 2.7% of GDP from 2%, and further raised it to 3% of GDP for 2017.Fitch estimates the Philippines' general government debt at 35.6% of GDP at end-2016, which was below the 'BBB' median's 41.1%. The Philippines' fiscal profile remains constrained by a narrow government revenue base. Central government revenues at end-2016 stood at 15.2% of GDP although the agency estimates general government revenue at closer to 22% of GDP. However, this is still below the 'BBB' median of 30% and the 'A' median of 35.5%. The authorities plan to address this weakness by implementing an ambitious comprehensive tax reform programme, with the authorities estimating that the first part of this reform package will add revenue of 2% of GDP. However, in Fitch's view, there are execution risks that could affect the extent of the reforms and their implementation. The Philippines' average income levels and standards of human development continue to lag many of its peers in the 'BBB' rating category. The Philippines' per capita income level at market exchange rates at end-2016 was USD2,968, compared with the 'BBB' median of USD9,654. Further, on the United Nations Human Development Index, Philippines is ranked in the 39th percentile while the 'BBB' median was the 68th percentile. Banking sector liquidity, capitalisation levels and asset quality ratios remain strong. The banking sector implemented Basel III minimum capital standards in full at the beginning of 2014. Loan growth in 2017 is likely to rise to the mid to high teens, with most of the growth in lending coming from increased demand from infrastructure, real estate and other business investment sectors. Continued strong credit growth could generate concerns of over-heating, and potential credit bubbles, but we believe that the authorities will be able to adjust policy to address these risks, including the implementation of macroprudential policy measures. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns the Philippines a score equivalent to a rating of 'BBB-' on the Long-Term Foreign-Currency IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employees 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The main factors that individually or collectively might lead to positive rating action are: - Continued strong growth without the emergence of imbalances and maintenance of external buffers that are resilient to potential negative external developments, including increased protectionism. - Further broadening of the government's revenue base that lends greater stability to government finances, for example reflecting the successful passage of the government's proposed tax reforms. - Strengthening of governance standards and implementation of reforms that support growth and improve structural indicators The rating Outlook is Positive. Hence Fitch does not anticipate a material probability of negative action over the forecast period. However, the main factors that could see the ratings revert to Stable Outlook are: - Deterioration in governance standards or political stability, for example, through an escalation of violence associated with the administration's campaign against the illegal drug trade that exerts a negative impact on external finances, economic growth or financial stability. - Weakening of external buffers in the face of negative external developments. - Instability in the financial system, possibly triggered by a sustained period of excessive credit growth. KEY ASSUMPTIONS - Global economic assumptions are consistent with Fitch's latest Global Economic Outlook. Contact: Primary Analyst Sagarika Chandra Associate Director +852 2263 9921 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Mervyn Tang Director +852 2263 9944 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021266 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below