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Economic managers expect the Philippines’ gross domestic product to grow by 4-5% this year and by 7-9% in 2022. — PHILIPPINE STAR/ MICHAEL VARCAS

FITCH RATINGS said it is keeping a close eye on the coronavirus disease 2019 (COVID-19) pandemic’s long-term impact on the Philippine economy, which is seen to return to pre-pandemic levels by the latter part of 2022.

“We will continue to assess the macroeconomic policy responses and the authorities’ ability to adhere to the fiscal consolidation plans in their medium-term framework. We will assess potential scarring effects, as well as possible challenges to unwinding the exceptional policy response to the health crisis and restoring sound public finances as the pandemic recedes,” Sagarika Chandra, a director at the Fitch Ratings’ Asia-Pacific Sovereigns team, said in an e-mail.

In July, the debt watcher revised its outlook on the Philippines to “negative” from “stable.” This means Fitch may downgrade the country’s investment grade “BBB” rating in the next 12 to 18 months.

The Philippine economy suffered a record 9.6% contraction in 2020, as the government implemented strict lockdowns to curb the COVID-19 outbreak.

Last week, Fitch trimmed its forecast for growth this year to 4.4% from 5% previously, citing the resurgence of COVID-19 infections and the low vaccination rate.

Economic managers expect gross domestic product (GDP) to grow by 4-5% this year and by 7-9% in 2022.

Ms. Chandra said Fitch expects the Philippine economy will only regain its pre-pandemic level by the second half of 2022.

“Higher levels of vaccination and easing outbreaks in the Philippines and the APAC region may result in the gradual lifting of some of the restrictions imposed to curb the spread of the virus. This, alongside base effects, may help to boost economic activity, trade and household spending,” she said.

However, Ms. Chandra said downside risks to the Philippines medium-term growth prospects stem from “the uncertain evolution of the virus which would dampen business sentiment and the recovery momentum.”

Economists have warned about the scars inflicted by the pandemic on the Philippine economy’s medium- and long-term potential.

The National Economic and Development Authority (NEDA) estimated the total economic cost of the coronavirus pandemic and lockdowns may reach P41 trillion over the next four decades.

Moody’s Investors Service in July has said the country may face “deep scarring” alongside Peru and India where pandemic management became a challenge. It last affirmed its “Baa2” rating with a “stable outlook” for the Philippines in July 2020.

Meanwhile, S&P Global Ratings in August said this “economic scarring” will likely mean the GDP by 2025 will be 12% lower than its potential without the pandemic. The ratings agency maintained its “BBB+” rating with a “stable outlook” for the Philippines in May.

The International Monetary Fund (IMF) said emerging and developing markets are expected to be hit with more scarring compared with advanced economies. With this, the IMF stressed the need to support most affected workers and sectors during the pandemic.

Fitch earlier said it will monitor developments in the country’s fiscal deficit and debt levels, saying a balance between fiscal consolidation and government spending for recovery will be crucial to the rating evaluation.

This year, the government expects the budget deficit to reach 9.6% of GDP before declining to 7.5% by 2022. 

As of end-June, the National Government’s debt-to-GDP ratio has already hit 60.4%, slightly over the 60% deemed as a prudential threshold for an economy’s debt level.

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno last week said the 60% debt-to-GDP ratio threshold may need reassessment given the current situation.

“That [threshold] is a long, long-time metric being used by those who would like to join the Euro community — 60% debt-to-GDP ratio and a deficit-to-GDP ratio of 3%. That does not apply to current events. We have to evaluate that,” Mr. Diokno said at a media lecture on Friday. — Luz Wendy T. Noble