Credit rating agency Fitch Ratings has commended the Philippines for its effective monetary policy, which has significantly eased inflation and supported economic stability.
In a credit update report released Wednesday, Fitch highlighted the Philippines’ success in curbing inflation. The report noted that the country achieved an average inflation rate of 3.2% during the first 11 months of 2024, a significant improvement from the 6% recorded during the same period in 2023.
The Bangko Sentral ng Pilipinas (BSP) implemented proactive measures to bring inflation within its target range of 2.0% to 4.0%. These included raising interest rates by a00 basis points in 2023 to counter inflationary pressures.
As a result, inflation decelerated, reaching 2.5% in November 2024, a milestone that reflects the effectiveness of the BSP’s monetary interventions. In response to the more stable inflation environment, the BSP has gradually shifted its stance to support economic growth, cutting interest rates by 50 basis points this year.
Fitch forecasts inflation to average around 3% in 2025 and 2026, paving the way for the BSP further to reduce interest rates by an anticipated 100 basis points next year. This policy flexibility is expected to bolster domestic demand and investment, fueling sustainable economic growth.
Economic growth outlook
Fitch remains optimistic about the Philippines’ economic prospects. The country’s gross domestic product (GDP) growth is projected to reach 5.7% in 2024, slightly lower than the government’s target but still indicative of resilience amid global headwinds.
Growth is expected to accelerate to 5.9% in 2025 and further to 6.2% in 2026, supported by robust domestic consumption, infrastructure spending, and a rebound in export performance.
Key growth drivers include the government’s continued focus on its Build, Better, More Infrastructure Program, which has spurred job creation and improved logistics efficiency. Additionally, strong overseas Filipino worker (OFW) remittances and rising foreign direct investments (FDIs) are contributing to economic stability and expansion.
Government reforms and structural improvements
Fitch also acknowledged the government’s ongoing efforts to implement structural reforms to enhance economic competitiveness. These include:
- Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act: Lowering corporate income tax rates and streamlining fiscal incentives to attract foreign investments.
- Financial Inclusion Initiatives: Expanding access to digital financial services to empower small businesses and underserved communities.
- Renewable Energy Development: Encouraging investments in renewable energy to address energy sustainability concerns and align with global environmental standards.
Such measures are expected to complement monetary policy actions, reinforcing the Philippines’ position as an attractive destination for investors.
Global headwinds and risks
Despite the positive outlook, the Philippine economy faces challenges from external risks. These include slower global economic growth, geopolitical tensions, and potential volatility in financial markets due to policy shifts in advanced economies.
Domestically, the government must navigate fiscal constraints while effectively implementing its spending programs. Maintaining a delicate balance between inflation control and economic growth will be crucial for sustained progress.
Fitch Ratings’ recognition of the Philippines’ sound monetary policy underscores the country’s commitment to achieving macroeconomic stability. With inflation now under control and interest rates expected to ease further, the Philippines is well-positioned to accelerate its economic growth trajectory.
The combination of effective policy measures, structural reforms, and a favorable demographic dividend bodes well for the country’s future.
However, addressing external vulnerabilities and sustaining momentum in reforms will remain critical to achieving the government’s long-term vision of inclusive and sustainable growth.
