Pandemic-related risks to delay Philippine recovery

MANILA, Philippines — Pandemic-related risks are expected to delay the Philippines’ economic recovery and may raise the prospects of long-term economic scarring, according to Moody’s Investors Service.

“Pandemic risks have weighed on the Philippines’ economic recovery compared to its more export-oriented peers in Asia-Pacific, delaying fiscal consolidation and raising the prospects of long-term economic scarring. In particular, the revival of private investment would depend on a sustained restoration of business confidence,” Moody’s senior vice president Christian de Guzman said.

De Guzman said structural credit difficulties include a low per capita income and some constraints to political and legal governance, which is contrasted by strong policy effectiveness.

Despite the significant rise in debt because of the pandemic shock, Moody’s said the Philippines has sustained its strong debt affordability compared with its Baa2-rated peers.

According to Moody’s, the presidential and national elections scheduled for 2022 raise uncertainties regarding the outlook for reform.

It also said the stable outlook reflects the view that the country’s recovery from the acute pandemic shock would restore rapid economic growth compared to its peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics.

“This scenario is balanced against the risk that the economy’s potential is damaged more significantly than Moody’s assumes or that fiscal and economic reform momentum does not resume, leaving the Philippines’ economic and fiscal strength weaker or both,” it said.

Moody’s said factors that could prompt a rating upgrade include a more rapid reversal of the deterioration in fiscal and debt metrics stemming from the coronavirus shock.

On the other hand, a greater deterioration in fiscal and government debt metrics relative to peers or an erosion of the country’s external payments position that threatens liquidity conditions could lead to a downgrade.

“The reversal of reforms that have supported prior gains in economic and fiscal strength, as well as a substantial deterioration in institutions and governance strength would also be negative,” Moody’s said.

Moody’s has assigned a Baa2 credit rating on the Philippines, a notch above minimum investment grade, with a stable outlook.