Policy continuity seen under Marcos admin

MANILA, Philippines — Fitch Rating sees policy continuity and sustained rebound from the pandemic-induced recession under the incoming administration of president-elect Ferdinand Marcos Jr.

In a podcast, Sagarika Chandra, lead analyst for the Philippines at Fitch Rating, said the Marcos administration is expected to focus on infrastructure buildup, which was also the focus of the Duterte adminstration.

“So we expect the new government to keep its focus on infrastructure investment, which is a key element in supporting the country’s favorable medium term growth prospects. At the same time this is also likely in our view to aid the post pandemic recovery,” Chandra said.

In February, the debt watcher affirmed the Philippines’ BBB rating – a notch above minimum investment grade – on the back of a negative outlook. Fitch lowered the Philippines’ credit rating outlook to negative from stable in July last year due to the impact of the pandemic.

The Philippines slipped into recession that stretched through five quarters with a gross domestic product (GDP) contraction of 9.6 percent as the economy stalled when the government imposed the longest and strictest lockdown in the world to slow the spread of the deadly disease.

The country, however, emerged from the pandemic-induced recession with a GDP expansion of 5.7 percent last year with the gradual reopening of the economy. The rebound was sustained with a stronger-than-expected 8.3 percent growth in the first quarter despite the shift to Alert Level 3 in the National Capital Region (NCR) and nearby areas as COVID infections hit daily record levels in January with the emergence of the more contagious Omicron variant.

“Favorable medium-term growth prospect is a key element of the sovereign’s BBB rating. Another element of the new administration’s economic agenda is increasing transfers from the central to the local governments in tandem with spending assignments,” Chandra said.

She said risks to the growth outlook posed by pandemic-related scarring and additional risks, including the spillover from the Russia-Ukraine conflict are still high.

“Although the Philippines’ direct linkage with Russia and Ukraine is not that large, the country remains vulnerable given that it is a net oil importer,” Chandra said.

Fitch lauded the key appointments to the economic team of the Marcos administration.

“The (members of the) economic team announced so far are technocrats, which suggests policies are likely to remain prudent. And under our baseline, we continue to expect broad policy contiguity. However, the President’s ability to implement legislation will also depend on dynamics within the new Congress,” Chandra said.

As the new administration vowed to undertake fiscal consolidation by reducing the deficit-to-GDP and debt-to-GDP ratios over the next six years, Chandra said improving tax administration to lift tax collections and high growth would bode well for the fiscal trajectory.

Due to rising inflationary pressures, Chandra sees the BSP hiking rates by another 50 basis points this year after it delivered a 25- basis- point rate hike on May 19.