Fitch’s Review of Philippines Outlook May Be First in Series | Item


Have we just started?

The Philippines received a negative outlook from Fitch Ratings on its BBB currency long-term debt rating on July 12, with the agency citing the following:

  1. Downside risks to medium-term growth prospects due to the “healing effects”.
  2. Challenges associated with unwinding extraordinary stimulus measures and restoring public finances.

The pandemic has weakened countries’ debt profiles (lower revenue collection coupled with increased spending) but so far we have only noticed a handful of downgrades or revisions to the outlook in the region. ASEAN. Perhaps the rating agencies have been more lenient given the fallout from the pandemic? In early 2021, Fitch’s ratings indicated they would push credit rating stocks back until 2022, while S&P recently echoed this sentiment suggesting that downgrades were unlikely for at least a year or two. .[1]. For now, it seems that some rating agencies are giving sovereigns a little more leeway, but how long will this trend last?

If outright rating downgrades are not an option in the short term, what about revisions to credit rating outlook? Could Fitch’s review of the Philippines outlook be the first of several to follow in Asia? A sovereign like Indonesia, which received a negative outlook from S&P in 2020 on its BBB rating, would he be in line for a review of the credit outlook also from Fitch or Moody’s?

We’re looking at some factors that rating agencies are likely to follow in assessing whether a country like Indonesia might be subject to a review of its near-term outlook. In addition, we are also examining the possibility of rating agencies pulling the trigger for outright rating downgrades in 2022 if these trends persist.

An outright degradation of the sovereign credit of the Philippines or Indonesia would in some cases bring them to the limit of the investment grade universe (BBB-), a misstep of a probable massive sell-off if one either one lost its investment grade status. The volatility experienced by Colombian bonds and the currency after the twin downgrade of S&P and Fitch to “junk status” in 2021 offers some takeaways for ASEAN and a situation regional players would likely want to avoid. Currently, the Philippines and Indonesia are both BBB rated by Fitch and we note the challenges they might face if either of them is downgraded to junk status.

[1] “Will the waves of COVID-19 erase sovereign credit?

Support In Asia-Pacific? », S&P Global ratings, August 22, 2021


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