Fitch: Philippines to shrink by 8% this year

MANILA, Philippines — Global rating agency Fitch Ratings expects the Philippines to suffer a deeper economic contraction of eight percent this year, and noted a continued erosion of the country’s fiscal buffers amid the coronavirus pandemic.

In a report, Fitch Ratings said the Philippine economy may decline by much more than the previous estimate of four percent following the implementation of “renewed lockdown measures in and around Metro Manila.”

Fitch’s projection of eight percent contraction is deeper than the Development Budget Coordination Committee’s assumption of a 5.5 percent drop.

Last May, Fitch Ratings lowered the country’s credit rating outlook to stable from positive, reflecting the deterioration in the country’s near-term macroeconomic and fiscal outlook due to the pandemic.

Fitch had flagged the downside risks to economic growth, particularly the possibility of a further extension or re-imposition of lockdown measures to contain the spread of the virus.

“These risks are materializing with the country’s difficulty in containing the virus,” Fitch said.

Fitch last May affirmed the Philippines’ BBB rating, which reflects the country’s healthy fiscal and external buffers, including its lower government debt-to-GDP ratio compared with peer medians and net external creditor position, as well as its still-strong medium-term growth prospects.

“However, these buffers are being eroded by the pandemic-related economic shock, although there is room to accommodate some deterioration in the fiscal outlook,” the credit watcher said.

Fitch expects the general government debt ratio to rise to 47.8 percent in 2020 from 34.8 percent in 2019. The figure is still below the projected peer median of 51.7 percent this year.

By 2021, Fitch sees the Philippine economy recovering with a nine percent growth rate, before easing with a 5.5 percent growth in 2022.

The credit watcher said that despite the rapid spread of the virus, the Philippines, together with India and Indonesia, are showing signs of recovery in business activities.

However, as the country is dependent on remittances, Fitch said the country may take time to recover.

Earlier, economic managers said the country entered the year with a strong position, giving it ample headroom to respond to the health crisis.

To help the economy cushion the impact of the pandemic, the Bangko Sentral ng Pilipinas has taken prompt and decisive actions including the reduction of interest rates by 175 basis points and lowering the reserve requirement ratio by 200 basis points.

Economic managers are also pushing for the passage of reforms, including the Corporate Recovery and Tax Incentives Act (CREATE), the Financial Institutions’ Strategic Transfer (FIST) bill, and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) bill.