Fitch gives better outlook for PH, signals rating upgrade possible

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Fitch Ratings has given a "positive" outlook for the Philippines' credit score on Tuesday, dropping a hint that the country is a step closer to an upgrade.

Metro Manila (CNN Philippines, February 11) — International debt watcher Fitch Ratings gave a better outlook for the Philippine economy on Tuesday, hinting that a rating upgrade is possible.

In a statement, Fitch kept the country at "BBB" — two notches above junk status — but revised the outlook for the rating from stable to positive.

"The outlook revision reflects Fitch's expectations of continued adherence to a sound macroeconomic policy framework that will support high growth rates with moderate inflation, progress on fiscal reforms that should keep government debt within manageable levels and continued resilience in its external finances," the credit rater said in a statement.

A positive outlook generally means that there is a bigger chance for an economy to receive a better rating. A rating closer to the "A" level would allow the Philippines to borrow money from abroad at even cheaper interest rates, as the credit scoring scheme attests to an economy's ability to settle its dues on time.

The Philippines has been on the "BBB" rating on Fitch's scale since December 2017. Its counterpart S&P Global Ratings already gave the country a higher "BBB+" rating in April 2019. This level signals "good" credit quality. The highest tier is at "AAA."

Fitch said it expects growth to pick up to 6.4 percent this year and 6.5 percent in 2021, coming from a 5.9 percent reading last year. Strong household spending and rising infrastructure investments are seen to support economic activity, with the Philippines seen to remain among the fastest-growing in the region.

The debt watcher, however, flagged that the novel coronavirus outbreak could dampen economic expansion, as well as natural disasters which could halt activity.

READ: BSP trims interest rates as rising food prices, coronavirus outbreak spook markets

"Recent reforms to strengthen institutional effectiveness, human capital and the business environment should lead to a further improvement in the Philippines' structural metrics over time," Fitch added, noting that the passage of additional tax reforms will add revenues and help the country manage debts.

Fitch also flagged that while the Duterte administration's decision to review existing government contracts created some uncertainty among investors, "the overall business environment will be unaffected."

President Rodrigo Duterte has repeatedly ranted against water concessionaires Manila Water and Maynilad due to their supposedly lopsided supply deals for Metro Manila. This triggered the Ayala family running Manila Water to cede control over the company to businessman Enrique Razon, who acted as a white knight to the embattled firm.

Fitch said continued strong growth, a stable economic environment, stronger governance standards and increased revenue collections will inspire future rating upgrades for the Philippines. Meanwhile, a reversal of reforms or a drastic change in existing policies, as well as instability in the financial system could lead to a downgrade, it said.

Debt watchers generally review a country's credit rating yearly.