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More debt watchers may revise Philippine credit outlook
MANILA, Philippines — More debt watchers are expected to revise their economic outlook for the Philippines from stable to negative, paving the way for a possible downgrade of the country’s credit rating before the end of the year.
However, government economic managers are convinced that the drag caused by the COVID-19 crisis is only transitory and that the Philippines is poised to gradually recover from the pandemic-induced recession.
ING Bank Manila senior economist Nicholas Mapa said other rating agencies, such as S&P Global Ratings and Moody’s Investors Service, are also likely to revise their economic outlook for the Philippines to negative in the coming months.
Mapa said the decision of New York-based Fitch Ratings to revise its Philippine outlook from stable to negative and retain the BBB investment grade rating – a notch above minimum investment grade – reflects the growing concerns about the rise in the country’s debt while recognizing the slow momentum of the economic recovery.
“If trends continue, we could see other ratings agencies follow suit in the next three months with a possible downgrade by yearend if fiscal metrics worsen further,” Mapa said.
S&P rates the country’s debt at BBB+ or a notch below the coveted “A” scale, while Moody’s has assigned a Baa2 rating or a notch above minimum investment grade. Both debt watchers also assigned a stable outlook on the Philippines.
The last time the Philippines received a negative outlook from debt watchers was in July 2005 when Fitch, S&P Global Ratings and Moody’s Investors Service lowered their outlook due to political instability as plans to oust then president Gloria Macapagal-Arroyo mounted.
Despite showing some green shoots, Mapa said the overall growth trajectory of the Philippines was less vibrant compared to pre-pandemic levels as consumption was still constrained by high unemployment and investments are held back due to poor investor sentiment.
Fitch lowered the country’s gross domestic product (GDP) growth forecast to five instead for this year and 6.6 percent for next year.
Euben Paracuelles, senior economist at Nomura Singapore Ltd., said the Philippines may become a regional laggard in terms of economic recovery because of limited fiscal support amid recurring COVID-19 outbreaks and slow vaccine rollout.
“The risk of scarring effects worsening will likely increase. In the near term, we think the negative outlook adds pressures on external balances, which we have argued are already weakening and are likely to weaken further due to the current account deficit and deteriorating terms-of-trade effects from higher commodity prices,”Paracuelles said.
Meanwhile, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the drag caused by COVID-19 on the Philippine economy is only transitory.
“The sharp economic contraction last year was caused primarily by strict containment measures to prevent the spread of the virus, save lives and increase the capacity of the healthcare system. When the daily tally of cases showed a sustained decline and the government started to relax the mobility restrictions, the surveys showed the economy was able to generate jobs quickly,“ Diokno said.
The BSP chief pointed out green shoots of recovery are expected to further strengthen and the economy to return to its robust growth path as the government accelerates the vaccination program and implements recovery measures.
“Of course, we recognize that there are risks to our growth outlook. However, our solid fundamentals and ongoing reform initiatives should carry us through a solid rebound – to a state that is well-calibrated to the emerging new economy,” Diokno said.
The COVID-19 response measures of the central bank including the aggressive 200 basis points interest rates cuts that brought the benchmark rate at an all-time low of two percent, the lowering of reserve requirements, the P540 billion provisional advance to the national government, the purchase of government securities in the secondary market, among others unleashed P2.2 trillion into the financial system.
“On the part of the BSP, we are helping realize this through our long list of COVID-response measures, including monetary actions that have helped maintain liquidity in the financial system at a critical time. We will continue to support the economy as needed, mindful of the negative consequences of premature disengagement of our response measures,” Diokno said.
Finance Secretary Carlos Dominguez said the significant negative impact of the pandemic on the Philippines is only temporary.
“In fact, the economy is already en route to a solid recovery path and is seen to have posted double-digit growth in the second quarter amid the fast-track implementation of the vaccine rollout and economic recovery measures,” Dominguez said.
For his part, Socioeconomic Planning Secretary Karl Chua said the negative outlook flags the risks that the government is already aware of.
“The economic team will continue to exert effort to open the economy safely, manage risks from covid, accelerate vaccine deployment, prudently use fiscal resources, and enact the remaining economic and fiscal reforms to further improve growth prospects,” Chua said.
Nonetheless, he said the rating, which was kept at BBB, is a vote of confidence in the Philippines’ economic and fiscal management despite the worst effects of the pandemic. – Louise Maureen Simeon
Source: https://www.philstar.com/business/2021/07/14/2112271/more-debt-watchers-may-revise-philippine-credit-outlook