MANILA – S&P Global Ratings on Thursday affirmed its ‘BBB+’ ratings on the Philippines after noting the domestic economy’s recovery, which it expects to accelerate in 2022 partly on the coronavirus disease 2019 (Covid-19) vaccination rollout.
It also kept the rating’s outlook stable, which it attributed to its expectation that the domestic economy “will achieve a healthy economic recovery and that its fiscal deficits will decline significantly over the next two to three years.”
“We affirmed the ratings because we believe the Philippines will continue to have good economic recovery prospects once the Covid-19 pandemic is contained, and that the government’s fiscal performance will strengthen accordingly,” it said in a report.
The debt rater expects a recovery for the domestic economy this and next year, with the growth forecast for this year at 7.9 percent, higher than the government’s 6-7 percent target.
It forecasts a 7.2-percent growth for the Philippines in 2022 and 2023, while the 2024 projection is a 7.1-percent expansion.
In the first quarter this year, the domestic economy, as measured by gross domestic product (GDP), posted a lower contraction of -4.2 percent from the previous quarter’s -8.3 percent.
S&P said the domestic economy has above-average economic growth potential “which should drive constructive development outcomes and underpin broader credit metrics.”
The debt rater attributed this to years of fiscal reforms and prudent debt management, which it said, allowed the government to address the pandemic’s impact, although not without some hit on its fiscal and debt metrics.
It said the robust external position of the country is due in part to the resiliency of the overseas Filipino workers’ (OFWs) remittances, the strong financial system, and the favorable demographics.
Regulatory and tax reforms also helped, it said, adding the impact of these on economic productivity.
“The Philippines government has generally enacted effective fiscal policies over the past decade, marked by improvements to the quality of expenditure, manageable fiscal deficits, and low levels of general government indebtedness,” it said.
Budget gap has widened to around 7.1 percent of domestic output in 2020 due to pandemic-related measures.
S&P forecasts the budget gap to increase to around 7.5 percent of GDP this year.
“However, this should begin to taper off from 2022 as the economy recovers and stimulus measures are scaled back,” it said.
Government debt increased to 38.5 percent of GDP last year given the need for stimulus programs and the debt rater projects this to further rise to around 41.7 percent this year.
“Nevertheless, this level of indebtedness remains comparable or lower than that of international peers,” it added. (PNA)