Threats to PH’s credit standing, pinpointed by Fitch Ratings

UK-based credit watcher Fitch Ratings said on Thursday that any further decline in the Philippines’ already-low per-capita income, coupled with the current state of governance – which foreign analysts see as weak – could be factors for the country’s sovereign rating to be brought back to below investment grade.

Fitch pointed out that although the economy has gained momentum in the last quarters, the income of the average Filipino has not grown at the same time as the rate of economic acceleration, neither is it anywhere near the income level of similarly rated peers in the Asia-Pacific region.

The credit watchers likewise said in its report on the Asia-Pacific Sovereign Credit Overview, released in July 2014, that despite the slow increase in the country’s per-capita gross domestic product (GDP), pegged at approximately $3,000 in 2014, based on market exchange rates, it is still one of the lowest GDP’s in the region. Countries with a ranking of “BBB-” reported a per-capita GDP averaging $11,000; while those rated “BB-” had a GDP of over $4,000.

The Philippines had previously received a rating of “BBB-“, which means that the country has a stable outlook, an economy with good credit quality and a low default risk.

Lower ratings, on the other hand, are indicative of a country with a speculative credit quality and an increased susceptibility to default.

Furthermore, Fitch noted that fiscal revenue of the Philippines remained on the low side averaging 19 percent of its GDP, as against the “BBB” median of 33 percent in 2014.
Decline in the standards of governance was also pinpointed as a crucial factor in the possibility of credit ratings being pulled down.

On the other hand, Fitch said that a stronger business climate and fiscal revenue base, plus a continued level of strong output expansion sans imbalances could possibly push the country’s key rating to a higher level.

“A steady inflow of overseas Filipino remittances, growth in the business process outsourcing industry, and low interest rates, continue to buoy growth,” Fitch said.