More expensive loans, fewer jobs loom with Fitch Ratings 'negative' outlook

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Metro Manila (CNN Philippines, July 13) — With a major international debt watcher recently dialing down on its expectations of the Philippines, some economists are flagging its potential repercussions on the economy and livelihoods.

Earlier this week, Fitch Ratings revised its outlook for the country from "stable" to "negative," with the rise in risks to the country's credit profile due to the COVID-19 health crisis and the economy's scars from it among the reasons it cited. 

While the global credit rater affirmed its BBB rating for the Philippines, a negative outlook means the "likelihood is there" for a downgrade of the country's investment grade, UnionBank chief economist Carlo Asuncion told CNN Philippines.

"Syempre kasi dapat mas mura, mas madaling um-access ang gobyerno at mga private companies sa external financing systems," he explained, as a lower investment grade means it's going to be more expensive for the nation to secure debts abroad.

[Translation: Of course it's supposed to be cheaper, easier for government and private companies to access external financing systems.]

"Definitely may impact diyan 'yung mga needs na kailangang pondohan ng gobyerno, needs na kailangang pondohan ng mga private companies that were actually expanding," he explained. "May impact 'yan sa job generation."

[Translation: That definitely has an impact on needs the government needs to finance, needs of private companies that were actually expanding that must be funded. That has an impact on job generation.]

Some 3.73 million Filipinos were out of work as of May, easing from the month prior with the relaxation of quarantine restrictions. This translates to a national 7.7% unemployment rate.

Asuncion says this reflects how the Philippine economy and its growth potential are seen at least in the medium term.

ING Bank senior economist Nicholas Mapa, for his part, noted the recent revision shows how ratings agencies have been paying attention to the rise in outstanding debt while "recognizing the slowing momentum of the economic engines."

The country's outstanding loans breached ₱11 trillion in May as the government borrowed more to beef up its COVID-19 war chest. However, this also came as the government's stimulus package Bayanihan 2 expired at end-June, with billions of pesos still unspent.

While the proposed Bayanihan 3 already hurdled the House of Representatives, Congress as a whole has yet to pass it.

"Despite showing some green shoots, the overall growth trajectory is likely less vibrant compared to pre-pandemic levels as consumption remains constrained by high unemployment and investments are held back due to poor sentiment," said Mapa.

Asuncion also noted that the recent downgrade might make other credit raters also take a look, mentioning in particular S&P Global Ratings and Moody's Investors Service.

Earlier this year, S&P maintained its BBB+ rating for the Philippines while Moody's affirmed its Baa2 rating. Both ratings come with a stable outlook.

"If trends continue we could see other ratings agencies follow suit in the next 3 months with a possible downgrade by yearend if fiscal metrics worsen further," Mapa further explained.

BDO chief market strategist Jonathan Ravelas told CNN Philippines the outlook revision is a "writing on the wall" that the country needs to do better in navigating the COVID-19 pandemic.

Ravelas mentioned that ramping up the national vaccine drive can allow the further reopening of the economy, a move that he said can ensure recovery takes place.

This is a view shared by RCBC chief economist Michael Ricafort, who also noted that additional measures to open the economy more will also boost the government's revenue collection efforts and in turn slash the national budget deficit and slow the debt stock's growth.

A budget deficit happens when the government spends more than it collects. The deficit reached ₱200.3 billion in May, a five-month high.

CNN Philippines correspondent Melissa Lopez contributed to this report.