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S&P affirms PH credit rating despite pandemic

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Standard & Poor's affirmed on May 29, 2020 its 'BBB ' long-term and 'A-2' short-term sovereign credit ratings on the Philippines. The outlook on the long-term rating remains stable.

"The stable outlook reflects our expectation that the Philippines' orthodox policymaking will continue to underpin its credit metrics, and that the economy will rebound strongly in 2021," S&P said in a statement.

The debt watcher said the Philippines' economy should achieve a strong recovery from 2021, following a deep slowdown due to the COVID-19 pandemic this year.

"Although the economic slowdown will weigh heavily on fiscal and debt metrics over the near term, we expect a meaningful stabilization over the next three to four years owing to strong economic fundamentals and generally orthodox policymaking," it said.

"We may lower the rating if the economy suffers from a sharper and more prolonged downturn than we expect, leading to a material deterioration in the Philippines' fiscal and debt positions," it said.

"We may raise the rating over the next two years if the economy recovers much more quickly than expected, and the government makes significant further achievements in its fiscal reform program, such that the net general government indebtedness falls below 30 percent of GDP. We may also raise the rating if we believe the institutional settings that have contributed to the significant credit metric improvements over the past decade or so will persist," S&P said.

S&P said the ratings on the Philippines reflect its expectations that the economy will continue to achieve above-average growth over the medium term, which will drive constructive development outcomes and underpin broader credit metrics. 

Although the country's fiscal and debt settings will deteriorate due to the COVID-19 stimulus measures, the government's long track record of fiscal prudence provides some buffer, assuming a meaningful stabilization begins in 2021. The ratings are also supported by the economy's sound external settings. These are weighed against the Philippines' lower-middle-income economy, it said.

"The Philippine economy is likely to experience a contraction of 0.2 percent in 2020 as a result of the COVID-19 pandemic, but we expect a strong recovery in 2021, assuming that the global outbreak is generally contained," the credit rater said.

"Although this would mark the slowest economic growth rate since the Asian financial crisis, it is in line with the deep downturn we forecast for the global economy. Assuming that the pandemic is contained globally by the first half of 2021, we are forecasting the economy will expand by 9 percent next year, underpinned by strong growth in investment and exports," it said.

The Philippine economy is among the fastest growing in the world on a 10-year weighted-average per capita basis--a reflection of its supportive policy dynamics and improving investment climate. The country has a relatively diversified economy with an increasingly strong track record of high and stable growth. 

"We estimate GDP per capita will rise to almost US$3,540 in 2020 (we include nonresident nationals in our population data) and project real GDP per capita growth to average approximately 4.2% per year over 2020-2023," it said.

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