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Moody’s sees Philippines facing income gaps
Moody’s Investors Service has tagged the Philippines as one of the countries in the Asia-Pacific (APAC) region that will face challenges in addressing income gaps after the coronavirus disease 2019 (Covid-19) pandemic ends.
In a report on Tuesday, the New York-based debt watcher said the impact of the pandemic would exacerbate income inequality in the region. This will pose credit risk for sovereigns across the region, particularly those with weaker fiscal capacity and social protection systems, it added.
“Post-pandemic, less skilled workers or those with basic education are more likely to face unemployment and for longer than those with advanced education,” Moody’s warned, noting that “informal sector workers have been faced with a double whammy of significant job losses and inadequate coverage under social protection systems.”
Citing International Labor Organization estimates, the credit rater said the coronavirus crisis resulted in an almost 60-percent income drop in April alone for 1.6 billion informal economy workers, making up half of the global workforce.
“While not a rating driver in itself, persistent income inequality is linked with weak institutional frameworks and effectiveness, and lower and less stable economic growth, which breeds social and political strains,” it explained.
Moody’s also said that while expenditure measures could support vulnerable groups, nearly all APAC emerging markets had weaknesses in their social protection systems.
According to the credit rating agency, overall social protection coverage — which generally includes social insurance, transfers and labor market programs — is low in the region and typically excludes the informal sector, which compose a large part of many economies.
Across rated APAC sovereigns, the average social protection expenditure was over 5 percent of gross domestic product in 2015 and 2016, the latest year for which data is available. But the majority of governments spent below the regional average, and far below the Organization for Economic Cooperation and Development average.
Moody’s said social spending was lowest in India, the Philippines and Indonesia, although efforts to strengthen redistribution systems are “in train” in these countries.
Governments with weak social protection systems and low fiscal capacity to raise spending would face particular challenges in tackling income inequality, according to the agency.
“India, Indonesia and, to some extent, Malaysia and the Philippines, stand out in this regard,” the debt watcher said.
It also said low revenues constrained the ability of these governments to shore up financing for spending on social transfers.
If growth remains below pre-pandemic rates, these governments may face tough choices between addressing inequality before it has persistent and wide-ranging effects — particularly, but not limited to, social and political strains — and implementing fiscal consolidation, it added.
Moody’s warned that persistent inequality and public discontent with progress in addressing social issues could erode governments’ legitimacy, with negative implications for credit quality.
“For most APAC economies, policies seeking to narrow inequality feature prominently in political campaigns, and are an important aspect of longer-term economic plans and a factor driving electoral outcomes, particularly where social or income mobility is an issue, such as in India, the Philippines and Malaysia,” it said.
Source: https://www.manilatimes.net/2020/11/25/business/business-top/moodys-sees-ph-facing-income-gaps/801228/