Fitch Upgrades Philippines in Win for Duterte’s Economic Plans

Fitch Ratings raised the Philippines sovereign rating in a boost for President Rodrigo Duterte’s economic plans, which include a tax reform that’s set to strengthen the fiscal outlook.

The rating on the nation’s long-term foreign currency-denominated debt was raised one level to BBB with a stable outlook, Fitch said in a statement on Monday. The upgrade puts the Philippines on par with Italy and ahead of Indonesia.

Despite the controversy over Duterte’s bloody anti-drug war, Fitch said there’s no evidence it’s undermined investor confidence. The economy is set to remain one of the fastest expanding in Asia with growth of 6.8 percent next year and in 2019, the ratings company said.

“Strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates,” Fitch said. “Investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment.”

The president’s tax reform plan will boost revenue, which has been a long-standing weakness in the Philippines’ fiscal profile, Fitch said. That will help spur infrastructure spending and underpin economic expansion.

The move by Fitch was “a significant vote of confidence,” Budget Secretary Benjamin Diokno said in a mobile-phone text message. “It supports the growing consensus that the Philippines will be one of the fastest-growing countries not only in the fast-growing Asia Pacific region but also in the world.”

Other details from the Fitch statement:

  • Gross general government debt is projected by Fitch to decline to around 34 percent of gross domestic product at the end of 2017, below the ‘BBB’ median of 41.1 percent of GDP
  • A full set of tax reform packages would boost revenue by 2 percent of GDP by 2019, with administrative measures to add another 1 percent over this period, Fitch said, citing a government estimate.
  • The recent appointment of central bank Governor Nestor Espenilla from within the Bangko Sentral ng Pilipinas has provided continuity and supports monetary policy credibility
  • Inflation is expected to remain within the BSP’s target range of 2 percent to 4 percent
  • The current account will probably shift into a deficit in 2017, and Fitch predicts this trend to continue in 2018 and 2019