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By Daryll Edisonn D. Saclag, Reporter

Fitch raises Philippine growth forecast

Posted on April 13, 2015

THE ECONOMY could expand slightly faster than initially expected this year on the back of strong remittances and a growing business process outsourcing (BPO) sector, Fitch Ratings said in a recent report.

The Philippines currently holds a “BBB-” investment grade and a “stable” outlook from the global debt watcher, which last month affirmed its rating on the sovereign that was first issued in 2013.

In an April 2 report that explained its March 17 rating action, Fitch said it expects Philippine gross domestic product (GDP) to accelerate to 6.3% this year from 6.1% in 2014, and ease slightly to 6.2% next year.

Both forecasts are higher than the 6.2% and the 6.0% estimates for 2015 and 2016, respectively, that Fitch gave last January.

“Growth is expected to remain strong on an expanding BPO industry and steady inflow of overseas worker remittances, having averaged around 6.3% for the 2010-2014 period,” read the report.

“Fitch expects these factors to continue to support growth in 2015 and 2016...” it added.

The latest projections, however, still fall short of the 7-8% growth target set by government.

The economy grew by 6.1% last year, a few points shy of the government’s 6.5-7.5% target for 2014 after a five-quarter-high of 6.9% was seen in October-December. Crawling farm sector output and lower-than-programmed -- and at times even contracting -- state spending had weighed on growth for much of last year.

Moving forward, Fitch said that “[s]ustained and strong growth that narrows the income and development differentials with its ‘BBB’ range peers without causing imbalances would be considered positive for ratings.”

The debt watcher also reiterated its call for the government to “widen” its revenue base through fiscal reforms and a continued reduction in debt ratios. “Limited progress in widening the tax base remains a credit constraint,” Fitch said, adding: “The revenue and grants to GDP ratio was much lower at 15.1%, against the ‘BBB’ median of 28.9% at end-2014.”

“The authorities may face difficulty with a plan to raise the tax revenue as a percentage GDP to 16% by 2016 without further tax reforms or administrative improvements.”

The “biggest” risk to the country’s credit rating, however, would be a reversal of policies put in place by the Aquino administration or slower implementation of governance reforms.

Fitch noted that while the Philippines saw “macroeconomic stability and improvement in governance standards” under President Benigno S.C. Aquino III, whose six-year term ends in June 2016, the business environment remains “encumbered by persistent corruption and the lack of adequate infrastructure.”

The credit rater added that it does not expect any “radical” changes in policy direction in the next administration, but noted that sustainability of the pace of reform momentum remains uncertain.