Fitch joined Standard and Poor's, which upgraded the Philippines last week, although another rival, Moody's Investors Service has said it was maintaining its "negative" outlook on the Philippines' despite recent economic reforms.

"The good 2005 fiscal performance and 2006 fiscal outlook, together with a more settled political environment, warrant the change in outlook," Fitch said in a statement.

It cited the government's recent implementation of a 12-percent increase in the value-added tax which is expected to boost revenues and shrink the deficit, forestalling a looming fiscal crisis.

Fitch said the "short-term fiscal prospects have improved (but) medium-term challenges remain and public finances are still a rating weakness," adding that a "more significant fiscal adjustment" would have to be made.

It also warned that "political developments could still affect creditworthiness," citing continuing efforts to revise the constitution and a likely revival of opposition's efforts to impeach President Gloria Arroyo on charges that she cheated to win the May 2004 elections.

Commenting on the recent praise that the Philippine economy has been getting, Arroyo's spokesman Ignacio Bunye said "the full credit for our economic gains goes to Filipino excellence and enterprise. President Arroyo has provided the roadmap for reform and the people took the wheel."