Philippines – Moody’s: Pandemic shock to spur income inequality

MANILA, Philippines — The shock from the coronavirus pandemic may spur income inequality with credit risks for fiscally weak countries like the Philippines, according to Moody’s Investors Service.

In a report, Moody’s said governments with constrained fiscal capacity would have limited scope to address pandemic-related social and political strains that could amplify credit risks.

Moody’s said the Philippines, Malaysia, Indonesia and India have weak social protection systems and low fiscal capacity to raise spending and could face challenges in tackling income inequality.

“Generally speaking, public discontent with progress in addressing social issues could erode government legitimacy, with negative implications for credit quality,” Moody’s said.

Income inequality refers to measures of how income is distributed across members of a population.

For one, the credit rating agency pointed out that the Philippines has reported strong coverage and benefit incidence, but low spending as a share of gross domestic product (GDP).

Moody’s said the Philippine government has increased welfare assistance under its conditional cash transfer programs as it continues to expand health insurance coverage.

“Notably, in the Philippines, revenue collections from sin taxes on tobacco, and alcoholic and sugary beverages help to finance the universal healthcare program, representing a double-barreled fiscal approach to enhancing social protection,” Moody’s said.

The debt watcher said the Philippines and Malaysia have little fiscal space to ramp up spending without offsetting tax measures and high gini ratios. The gini is a measure of statistical dispersion intended to represent income inequality.

The Philippines ranked third to the last below the median in gini coefficient with 44.4 percent, slightly better than India’s 47.3 percent, and China’s 46.7 percent.

Moody’s said the COVID-19 pandemic continues to exacerbate income inequality mitigated by fiscal measures in Asia-Pacific.

“For most Asia-Pacific 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.

Despite imposing the longest and strictest lockdowns in the world to prevent further spread of the virus, COVID-19 cases in the Philippines breached the 420,000-level with more than 8,000 deaths.