Fiscal recovery critical for Philippines ratings-Fitch

MANILA, May 6 - The Philippines could put its credit rating at risk if fiscal imbalances are not addressed once the economy starts to recover from the blows of the global downturn, Fitch Ratings said on Wednesday.

Fitch affirmed a stable outlook on the Philippines' credit ratings. Its long-term foreign and local currency issuer default ratings are at BB and BB plus. respectively. [ID:nWNA3443]

Fitch said the government's forecast increase in the fiscal deficit was in line with the Philippines BB-rated peers. However government debt and weak revenues were concerns especially given that the administration will look to avoid unpopular policies in the run up to presidential elections in 2010.

"With a much weaker economy and elections due next year, the agency does not believe revenue enhancement will be a short-term policy priority," Fitch said in a report.

"If forecast increases in spending are not reversed once the economy begins to recover, or revenue collection is not stepped up considerably, there is a risk that Philippine government debt ratios may deviate further from the 'BB' medians, with possible negative rating implications," it said.

Fitch cut its forecast for 2009 economic growth to just 0.1 percent from an April forecast of 0.5 percent, similar to the International Monetary Fund which sees no growth but much lower than a government target of at least 3.1 percent growth.

The economy expanded 4.6 percent in 2008.

Fitch also forecast that remittances, a major driver of consumption, would fall 6.8 percent this year, much more pessimistic than the central bank's view that remittances will be unchanged.

Excluding proceeds from asset sales, Fitch said the government's budget shortfall could balloon to 271 billion pesos ($5.7 billion) this year, or 3.5 percent of GDP.

That's way beyond the government's projected 199.2 billion pesos budget deficit, which includes 30 billion pesos of projected earnings from privatisation.