Philippines wins Fitch credit rating upgrade, vote of confidence on economic reforms

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Fitch Ratings raised the Philippines’ sovereign rating by one level, from BBB- to BBB, with a stable outlook, amid favorable economic conditions and planned tax reform.

The upgrade of the Philippines’ sovereign rating is important as it would bring down the costs of overseas borrowing for Filipino companies. Also, it will bring down the cost of capital for the system and eventually reflect in terms of lower credit cost.

Any international credit rating agency upgrading the sovereign rating clearly shows the faith they have on the country’s economic policies.”This will also have an indirect positive effect on corporates when they borrow abroad. It will have a positive impact on corporate borrowing.

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

According to Fitch, investor confidence has not been impacted by the country’s anti-drug war.

Fitch sees real gross domestic product (GDP) growth of 6.8% in 2018 and 2019, which it noted would maintain the Philippines’ place among the fastest-growing economies in the Asia-Pacific region.

Fitch took the Philippines’ proposed tax reform program into account and expects the country’s fiscal profile to improve as a result of it.

Both the Senate and the House of Representatives have passed their versions of the first tax reform package and are now holding bicameral talks. The tax reform package could be signed into law by the end of the year.

The move by Fitch was “a significant vote of confidence,” Budget Secretary Benjamin Diokno said in a mobile-phone text message, while Finance Secretary Carlos Dominguez said there’s likely to be more credit-rating upgrades in years to come as the government reforms the tax system, improves infrastructure and attracts more investment.

“Our fiscal position is much stronger now on account of administrative measures we are implementing to improve revenue collection,” Dominguez said in a text message. “Our growth prospects are also brighter compared with our neighbors and peers.”

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