Rising Debt Puts PH Credit Outlook in the Negative

PHOTO BY Shutterstock ILLUSTRATION War Espejo

Fitch Ratings lowered its outlook on the Philippines from stable to negative on July 12, meaning the country's credit rating risks getting downgraded as well.

Investors look to ratings from Fitch and other debt-watchers such as S&P and Moody's to determine the ability of a government or company to pay back its loans. Those with high ratings can ask for lower interest and can access a wider pool of creditors.

Also read: Philippine Economy in a "Worrisome State," Says Moody's Analytics

A negative outlook means that—once certain conditions are met—the rating could get downgraded. The reverse is true for a positive outlook while a stable outlook indicates status quo.

The outlook is different from the rating. Fitch rates the Philippines at BBB or minimum investment grade. BBB is one notch above junk debt.

"The revision of the Philippines' Outlook to Negative reflects increasing risks to the credit profile from the impact of the pandemic and its aftermath on policy-making as well as on economic and fiscal out-turns," Fitch said.

ING Economist Nicholas Mapa explained the Fitch Ratings action: "The outlook revision reflects the growing attention ratings agencies are likely giving to the protracted rise in Philippine debt while recognizing the slowing momentum of the economic engines."

"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," Mapa said.

Part of Manila's recovery strategy is to vaccinate up to 70 million people to achieve herd immunity or at least 50 million in key areas this year to achieve population protection. The target is ambitious with just 3% of the population immunized, Fitch said.

While daily caseloads have eased from April, the number of new infections remain high, Fitch said.

Total debt will be equal to 52.7% of the economy this year and 54.5% in 2022, Fitch said. This is a "large" jump from 34.1% in 2019 and exceeds the median of economies that are rated BBB like the Philippines, it said.

There are "green shots" pointing to a recovery. Remittances grew 4.8% in the first four months of 2021 while January to May exports grew 21.4%, Fitch said. This means OFWs are sending more money while exporters' businesses are growing.

For 2021, the Philippine economy could grow 5%, pulling itself out of the worst recession since World War II.

This story originally appeared on Reportr.world. Minor edits have been made by the SPOT.ph editors.

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Source: Spot PH