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Philippines faces risk of credit downgrade
MANILA, Philippines — The Philippines is facing downgrade pressure due to the scarring caused by the pandemic, the expected slower economic growth in China and the impact of the Russia-Ukraine war, according to Fitch Ratings.
In a report, the debt watcher said further COVID outbreaks in China could affect other countries’ credit profiles in the region.
“Ratings that are sensitive to this risk, with relatively limited headroom, such as that of the Philippines, could face downgrade pressure,” Fitch said.
According to Fitch, the rating impact would vary for the hypothetical scenario in which China’s growth slows significantly below current forecasts as a result of further outbreaks of COVID.
“We believe slower growth and weaker global investor sentiment – leading to capital outflows and tougher access to external financing – will be the main channels through which other APAC sovereign ratings are likely to be affected,” it said.
It said that weaker exports, including the effects of disruption to supply chains within China, would weigh on near-term growth prospects, which would directly impact credit metrics.
“The effects across the Asia-Pacific may be largely transitory, but this additional shock after the pandemic and the Russia-Ukraine war may raise the risk of economic scarring that could weigh on medium-term growth prospects,” Fitch said.
Amid a sea of downgrades at the height of the global health crisis, the Philippines managed to retain its investment grade ratings from Fitch, S&P Global Ratings and Moody’s Investors Service.
Last February, Fitch affirmed the BBB rating – a notch above minimum investment grade – and stable outlook of the Philippines, but flagged downside risks to the economic recovery from potential pandemic-related scarring effects as well as post-election uncertainty.
Exactly a year ago, Fitch lowered the outlook of the Philippines to negative from stable to reflect increasing risks to the credit profile from the impact of the pandemic and its aftermath on policy-making as well as on economic and fiscal out-turns.
Fitch analyst Sagarika Chandra earlier said the country’s gross domestic product growth forecast was lowered to 6.5 percent for this year and further to 6.3 percent for next year after emerging from the pandemic-induced recession with a 5.7 percent GDP expansion in 2021.
Chandra cited the continued inflationary pressures due to high prices of food and other commodities that pushed the consumer price index to an average of 4.4 percent in the first half , exceeding the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).
“We expect economic activity to remain strong over the next few quarters in those sectors and from infrastructure development. We forecast growth of 6.5 percent in 2022 and 6.3 percent in 2023, which would support the credit outlook,” Chandra said.
Source: https://www.philstar.com/business/2022/07/30/2198896/philippines-faces-risk-credit-downgrade-