Updated 18:20 PM PHT Mon, April 18, 2016
Metro Manila (CNN Philippines) — Fitch Ratings has affirmed the Philippines' credit score at investment grade, citing a strong economy and a stable banking industry.
However, the country's economic managers insist an upgrade is long overdue, as Fitch rates the Philippines lower than other major credit raters, Moody's and Standard & Poor's (S&P).
In a statement on Friday (April 8), Fitch kept the Philippines at BBB-, the lowest of the investment grade credit ratings. It did give the country a positive outlook, though, indicating an upgrade could happen in the next one to two years.
The Philippines won investment grade status from Fitch last March 2013, but it has stayed at that level ever since. In contrast, S&P rates the Philippines at BBB, while Moody's rates it at Baa2 — both equivalent to two notches above investment grade.
At investment grade, a country is seen to be fully able to meet its foreign debts. Before this, Philippine debt was considered speculative — often derisively called "junk bonds." A strong credit rating is often key to attracting foreign investors. It also helps lower interest rates for the government and local corporations when they borrow money abroad.
Fitch said it affirmed the Philippines' credit rating on the back of its robust economic growth. The economy grew by an average of 5.9% from 2011 to 2015, and it is forecast to accelerate further to 6% this year and next. Other countries with a similar credit rating typically grow by only 3.3%.
Another rating strength, according to Fitch, is the steady inflow of remittances, which give the country an ample reserve of foreign currency. Government debt is also declining, estimated at 36% of gross domestic product in 2015, down from 43% in 2010.
The banking sector is likewise healthy, with banks well-capitalised and loan growth moderating. The Bangko Sentral ng Pilipinas (BSP) has worked hard to supervise banks and strengthen their risk management rules.
The low level of government revenue, meanwhile, was tagged as a rating weakness. It raises questions about the government's ability to cope with economic shocks, Fitch said.
Despite the strength of the economy, per capita income and development have fallen behind, it said. Average income in the Philippines is only $2,860 a year (roughly P132,000), well below the $9,253 average (roughly P427,000) in similar countries.
Pushing the PH case
Economic managers welcomed the Fitch action but continued to push the Philippines' case for an upgrade.
Investor Relations Office Executive Director Editha Martin said a lot has changed in the last three years since Fitch put the Philippines at BBB-. Key reforms include the sin tax increase, the full liberalization of the banking sector, the passage of the Competition Act and the shift to K-12 education.
Ahead of the national elections in May, Finance Secretary Cesar Purisima assured credit raters these reforms would stick. "The sustainability of our trajectory is unmistakable, owing to the institutionalization of governance and business reforms."
He also said that the momentum for change would not waver. "We've had a solid six-year run of growth and stability... But as they say, the biggest room in the world is the room for improvement."