Philippines: Fitch Promotes the Country to Investment Grade

Consensus Forecasts
Last month the Philippines saw its credit rating upgraded to investment status for the first time by one of the world’s major ratings agencies. The decision by Fitch Ratings to lift the country’s long-term foreign currency debt by one notch from BB+ previously to BBB- stems from the Philippines’ resilient performance in 2012 after it outperformed its peers in South East Asia by posting growth of 6.6%. Furthermore, the agency added that better fiscal management as well as improved governance under the Aquino administration contributed to the upgrade. Last month’s promotion to investment-grade status is expected to set the tone for other debt rating agencies to follow suit. Moody’s and Standard & Poor’s currently still rate the Philippines just below investment grade, although both agencies did raise the country’s debt rating last year. Financial markets responded positively to the decision by Fitch Ratings, as share prices rose sharply, while the Philippine peso and government bond prices also headed higher. Government officials are hoping the ratings upgrade will pave the way for lower borrowing costs and encourage more foreign investment, which in turn, will boost growth.

Last year the country benefited from robust remittance inflows, and judging by latest data, remittances have started this year on a strong note. January’s report showed that money sent home from abroad rose by 8.4% (y-o-y) to reach US$1.9bn. The introduction of new financial products and services have helped to boost inflows, but steady demand for overseas Filipino workers has played a key role. With strong growth in remittances expected to persist throughout this year and the economic outlook remaining strong, 2013 growth forecasts have been lifted again this month.

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