Fitch has upgraded the Philippines’ sovereign rating on the back of domestic demand and foreign direct investment which was seen as indicative of strong investor sentiment and robust growth in the medium term.
The report provides an endorsement of President Rodrigo Duterte’s economic plans, which include tax reforms aimed at bolstering the fiscal outlook.
Fitch was the first credit rating agency to raise the Philippines’ credit rating to investment grade in 2013.
The upgrade from BBB- to BBB with a stable outlook follows a rise in the Philippines’ GDP by 6.9 per cent in the third quarter, which exceeded estimates. Fitch said the upgrade put the Philippines on par with Italy and ahead of Indonesia.
It praised the GDP expansion, “underpinned by sound policies that are supporting high and sustainable growth rates”.
The agency predicted economic growth of 6.8 per cent in 2018 and 2019, the highest in Asean, on expectations that higher infrastructure spending would encourage further expansion.
Despite the controversy over Duterte’s bloody anti-drug war, Fitch said there was no evidence the bloodshed had undermined investor confidence.
Manila has drawn international criticism for the killing what it claims is around 3,900 people in police anti-drugs operations since Duterte came to office in June last year. The police deny claims by human rights groups that the numbers are far higher and that many of the killings were executions.
Fitch said the first part of a tax reform package that was expected soon could add between 0.5 and 0.8 per cent of GDP and further boost government coffers next year, supporting increased state spending.
Parliamentarians are due to meet in Manila to debate the tax bill, which include cutting most income taxes while raising charges on fuel, sugar and cars.
“We are quite confident it’ll push through, but we expect delays,” said Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch. “We do think the tax reforms have, at the principle level, broad consensus.”
Duterte’s tax plan would boost revenue, which had been an ongoing weakness in the nation’s fiscal profile, Fitch argued, helping to boost infrastructure spending and underpin economic expansion.
The peso rose 0.3 per cent to 50.35 per dollar today (Monday) in Manila. The benchmark stock index fell 0.2 per cent.
“Strong and consistent macroeconomic performance has continued, underpinned by sound policies that are supporting high and sustainable growth rates,” Fitch reported. “Investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment.”
Manila is booming. Picture credit: Wikimedia