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Fitch upgrades Philippines to BBB with stable outlook

Fitch upgraded Dec. 10 the Philippines' long-term foreign-currency issuer default rating to BBB from BBB- with a stable outlook. The upgrade comes on the back of "strong" investment sentiment and "sound" fiscal policies.

The rating agency forecasts real GDP growth of 6.8% in 2018 and 2019, sustaining the Philippines' position as one of the fastest-growing Asia-Pacific economies.

Fitch said investor sentiment has remained strong, and "there is no evidence so far that incidents of violence associated with the administration's campaign against the illegal drug trade have undermined investor confidence."

Fitch expects inflation to hover within the Bangko Sentral ng Pilipinas' target range of 2% to 4%.

Fitch said based on government estimates, the first part of a tax reform package is expected to add between 0.5% and 0.8% of GDP to government revenues in 2018. This should keep the deficit within the ceiling of 3% of GDP in 2018 and 2019.

On the downside, "continued strong growth raises the risk of the economy overheating," Fitch said. Leverage has risen and the trade deficit has widened.

Fitch said higher infrastructure spending under the government's public investment program will support growth in the medium term. Fitch expects the country's current account deficit to continue in 2018 and 2019, but the deficits would be manageable at less than -0.5% of GDP.