The Philippines: Fitch Revises Philippines’ Outlook to Negative; Affirms at ‘BBB’

  • Fitch Ratings has affirmed Philippines’ Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB’ and revised the Outlook to Negative from Stable.
  • The revision of the Philippines’ Outlook to Negative reflects 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 believes there are downside risks to medium-term growth prospects as a result of potential scarring effects, and possible challenges associated with unwinding the exceptional policy response to the health crisis and restoring sound public finances as the pandemic recedes.
  • As yet unidentified spending or revenue measures would be required to achieve a level of fiscal consolidation consistent with reducing fiscal deficits towards their pre-pandemic levels.
  • Presidential elections scheduled for May 22 create some uncertainty around the post-election fiscal and economic strategy.
  • Another uncertainty relates to the fiscal impact of the 2018 Supreme Court ruling requiring increased revenue transfers (i.e. internal revenue allocation) from the central to local government units.
  • We expect the transfers to take place in 2022, and be fiscally neutral at the general government level, given plans for spending assignments to be transferred to local government units in tandem with revenue allocations, albeit in a phased manner.
  • Poor execution could lead to underspending by local governments, which the authorities are seeking to address through capacity building.

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