Debt watcher Fitch Ratings has maintained its negative outlook for the Philippines as it flagged risks to sustained economic growth due to higher interest rates and surging inflation.
While the country’s “BBB” investment grade remained, Fitch said the new government under President Bongbong Marcos faces the risk that its planned revenue-raising measures and spending efficiency “may not be realized,” which could affect plans for economic expansion.
The debt watcher expects growth to rebound to 6.8% in 2022, fueled by strong domestic demand two years after the global COVID-19 outbreak.
“Lower public-sector investment, as envisaged under the government’s fiscal programme, may slow one of the key tailwinds to growth in recent years,” Fitch said. “However, this could be offset by higher private investment, which the government is targeting, and the investments could yield growth dividends not accounted for in our forecasts.”
Fitch also flagged that the possibility of reduced confidence in strong economic growth, failure to pull down the debt-to-GDP ratio, and a “significant” reduction in dollar reserves may merit a rating downgrade, but may be offset by improved confidence on growth prospects.
“Growth is likely to be slower and interest rates higher than projected in the government’s macroeconomic framework, with adverse effects for the fiscal deficit, although higher inflation and a weaker currency will support revenues. Nevertheless, we note that fiscal outturns have been in line with budgets in recent years,” it added.