Credit rating agency Fitch Ratings has affirmed the Philippines’ ‘BBB’ credit rating and upgraded its outlook from ‘negative’ to ‘stable’ on May 22, 2023.

“The improved outlook for the Philippines to ‘stable’ is a testament to the country’s robust macroeconomic fundamentals, as evidenced by the economy’s strong growth performance in 2022 at 7.6 percent and 6.4 percent in the first quarter of 2023,” Finance Secretary Benjamin E. Diokno said following the release of Fitch’s rating report.

According to the report, the revision of the outlook to ‘stable’ reflects Fitch’s improved confidence in the Philippines’ return to strong medium-term growth after the COVID-19 pandemic, sustained reductions in the country’s debt-to-GDP ratio, and the country’s sound economic policy framework.

Fitch forecasts that the Philippines’ real GDP growth will reach above 6.0 percent over the medium term, higher than the median ‘BBB’ growth rate of 3.0 percent.

“Fitch’s latest rating action reflects the strong economic activity which can be fostered by the improved investment climate in the country. The country’s growth is further supported by the steady improvement of our labor and employment conditions,” Secretary Diokno added.

A rating of ‘BBB’ sits above the minimum investment grade and suggests that expectations of default risk are low. It also indicates the ability of the country to meet its financial commitments

A sovereign investment-grade rating signals a country’s creditworthiness and allows it to access funding from development partners and international capital markets at lower cost.

The decision of Fitch reflects its concurrence with the National Government’s (NG) fiscal consolidation process and assessment of sustainable debt dynamics.

The Department of Finance (DOF) stressed its commitment to maintaining the stability of the country’s macroeconomic fundamentals through prudent fiscal management.

“We will continue to rely on structural reforms that will broaden opportunities and enhance the country’s productivity, particularly through higher investments in infrastructure. The full implementation of the six-year Medium-Term Fiscal Framework will support these investments while promoting fiscal sustainability,” Secretary Diokno said.

The proposed tax revenue measures under the Framework include Package 4 of the Comprehensive Tax Reform Program or the Passive Income and Financial Intermediary Taxation Act, value-added tax (VAT) on digital service providers, excise taxes on single-use plastics, and excise taxes on pre-mixed alcohol. These measures are currently being deliberated and discussed at the House of Representatives and Senate, and are expected to be implemented starting 2024.

To support the reforms in the Medium-Term Fiscal Framework, the Development Budget Coordination Committee (DBCC) announced in its April 24 meeting additional tax measures that could boost revenue collections for the Administration’s development agenda. These additional measures include the imposition of higher excise taxes on sweetened beverages, rationalization of the Motor Vehicle Road User’s Tax, and reforms to the mining fiscal regime.

To help ensure that structural reforms will translate to greater revenue collection, the government will continue to improve its tax administration system through the Tax Administration Diagnostic Assessment Tool (TADAT) and the use of digitalization and technology.

To complement the revenue-generating measures, the government is also pursuing expenditure reforms, such as the National Government Rightsizing Program and reforms to the Military and Uniformed Personnel (MUP) pension system. The MUP pension reform aims to make the system fiscally sustainable for the National Government and to build a strong social protection system for current retirees and future MUP alike.

With the reconstitution of the Economic Development Group (EDG), co-chaired by Secretary Diokno and National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan, the government will ensure that economic growth is maintained by fast-tracking the implementation of infrastructure projects and mitigating the impact of global uncertainties.

The government also helps in maintaining the country’s sound macroeconomic fundamentals with the creation of the Inter-agency Committee on Inflation and Market Outlook (IAC-IMO), which aims to intensify the timely implementation of direct measures to curb persistent inflation by addressing supply issues, strengthening ground monitoring, and ensuring affordable and reliable energy supply.