Country for PR: Hong Kong
Contributor: PR Newswire Asia (Hong Kong)
Tuesday, January 12 2021 - 19:47
Bangko Sentral ng Pilipinas: Philippines continues to defy global trend of credit rating downgrades
MANILA, Philippines, Jan. 12, 2021 /PRNewswire-AsiaNet/ --

Fitch keeps country's 'BBB' rating with 'stable' outlook

International debt watcher Fitch Ratings has kept the Philippines' investment 
grade credit rating of "BBB" with a "stable" outlook, citing the manageable 
fiscal situation despite the COVID-19 crisis and favorable growth prospects 
amid a declining number of daily confirmed COVID-19 cases, according to Bangko 
Sentral ng Pilipinas (BSP).


"BBB" is one step above the minimum investment grade, while a "stable" outlook 
indicates absence of factors that could trigger adjustment in the rating within 
the short term. 

By keeping its credit rating, the Philippines continues to stand out in the 
international financial community amid a wave of negative credit rating 
actions, which resulted from adverse impacts of the pandemic on the performance 
and credit profiles of many economies.  

In 2020, Fitch implemented 51 credit rating downgrades affecting 33 sovereigns 
(some sovereigns were downgraded more than once). These include countries that 
previously had the same rating as the Philippines, such as Mexico, Colombia, 
and Italy—whose ratings were downgraded by a notch to the minimum investment 
grade of "BBB-". 

In a report released on Monday, Fitch noted that the Philippines has "modest 
government debt levels relative to peers, robust external buffers, and 
still-strong medium-term growth prospects." Fitch also said it expects economic 
recovery in the coming quarters for the Philippines, placing its gross domestic 
product (GDP) growth projection at 6.9 percent for this year and 8.0 percent 
for next year. 

Reacting to Fitch's decision, two of the Philippines' top economic officials 
welcomed the affirmation of the Philippines' credit rating, which is a 
recognition of the soundness of the COVID response measures in the country, as 
well as the Philippines' strong fundamentals going into the pandemic and robust 
medium-term growth trajectory. 

Finance Secretary Carlos G. Dominguez said: "The affirmation of the 
Philippines' 'BBB' rating with a 'stable' outlook shows that the country has 
remained credit and investment worthy throughout the global COVID-19 crisis."

He added: "This is because, first, our strong economy on the Duterte watch gave 
us enough fiscal space to deal with the unprecedented health and economic 
crises. Second, there is a whole-of-government approach in saving lives, 
protecting communities and livelihoods, and providing relief to the hardest hit 
families, workers, and businesses. Third, we continued our commitment to 
prudent fiscal and debt management event as we start spending big on COVID-19 
response measures to revive the economy and restore both business and consumer 

"As soon as the pandemic struck in early 2020, the Duterte administration came 
up with and shepherded the swift congressional passage of twin legislation 
(Bayanihan 1 and 2) designed to beef up our healthcare infrastructure, extend 
the biggest emergency subsidies ever to poor families and dislocated workers, 
and provide relief to businesses, especially micro, small, and medium-sized 
enterprises (MSMEs)," Dominguez said.

"Moreover, the government is also working with the Congress on the quick 
passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) 
Act. This, and the Financial Institutions Strategic Transfer (FIST) bill, which 
has been passed by Congress, are meant to stimulate economic activity and speed 
up the country's recovery from the pandemic-driven global growth slump," he 

He said that pending the implementation of a mass vaccination program, the 
government has started relaxing mobility restrictions to further open up the 
economy on a calibrated basis, hence allowing businesses to resume or expand 
operations and boosting consumer spending.  

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said: "We 
appreciate Fitch's understanding of the Philippines' credit and macroeconomic 
direction amid the global pandemic we are all facing. For our part, the BSP was 
among the first central banks in the world to respond to the crisis with a 
policy rate cut as early as February last year. We deemed it important to 
signal to the market that we were ready to act swiftly and decisively to buoy 
market confidence, as well as to ensure sufficient liquidity and efficient 
functioning of the financial system."  

"We implemented a long list of response measures, including unprecedented 
ones—such as counting of loans to micro, small, and medium enterprises (MSMEs) 
as part of compliance with the reserve requirement—in a manner that was prompt 
and decisive. Given that the BSP, along with the rest of government, did its 
homework last year, we can see better days ahead as we look forward to the 
distribution of anti-COVID vaccines in the country," the central bank chief 

Based on latest government projections, the Philippine economy will swing from 
recession in 2020 to growth of 6.5 and 7.5 percent this year and between 8 and 
10 percent next year. Growth will be supported by government spending, with an 
approved National Budget of P4.506 trillion, which is 10 percent higher than 
last year's and equivalent to 21.8 percent of GDP.  

As of end-December 2020, released allotments for Bayanihan I and II, which 
provide financial support to health system improvements and vulnerable sectors, 
such as frontliners and MSMEs (micro, small and medium enterprises), amounted 
to P500.7 billion. 

The CREATE bill, which will be the country's largest stimulus package for 
businesses on record, will mandate corporate income tax cuts and the 
rationalization of the country's fiscal incentives system. It is already up for 
bicameral deliberations by Congress following separate moves of the Lower House 
and the Senate to approve their own version of the bill.   

The FIST bill, which has been passed by both houses of Congress and is 
currently being reviewed by the Office of the President before the signing of 
President Rodrigo Duterte, will help banks unload souring assets. This will 
help ensure that the banking system will remain healthy despite a potential 
rise in non-performing loans, which in turn could result from the adverse 
impact of the crisis on the ability of some borrowers to pay debts on time.

Meantime, measures to contain the spread of the virus and enhance the capacity 
of the healthcare system have shown positive results. As of  January 10,  the 
Department of Health reported that the  Philippines' active COVID cases had 
dropped to 20,038  which is the lowest in six months and a death rate of 1.93 
percent (significantly lower than global average). Also, weekly data from the 
World Health Organization (WHO) show that confirmed daily COVID cases and 
deaths in the Philippines have been on a downward trend since September 2020. 

"New daily recorded COVID-19 cases have been declining in recent months, 
reflecting an effective government response to the crisis and reducing the risk 
of renewed lockdowns. The authorities have also engaged in multilateral 
initiatives and with several pharmaceutical companies to secure vaccines, with 
a rollout anticipated starting in May 2021," Fitch noted.  

Fitch likewise recognized that "the Philippines external finances remain a 
credit strength," citing gross international reserves that are expected to 
remain equivalent to 9 or 10 months of imports and other external payments this 
year and next year. This compares with international standards, which suggest 
that GIR worth at least three months of import cover is sufficient. 

The debt watcher also expects the Philippine banking system to remain stable, 
with sufficient provisioning of banks that allow them to absorb any potential 
credit losses arising from the crisis. 

The affirmation of the Philippines' credit ratings by various debt watchers 
since last year has been beneficial, especially in relation to its efforts to 
fund COVID recovery measures. Favorable credit ratings help a sovereign (or any 
borrowing institution) access financing at lower cost. 

For inquiries, please contact: 

Michelle V. Remo
Information and Communications Management Unit 
Investor Relations Office (IRO) 
Bangko Sentral ng Pilipinas (BSP)

Source Bangko Sentral ng Pilipinas (BSP)