By Chino Leyco
Debt-watcher Moody’s Investors Service said the Philippine economy is expected to sustain its robust growth pace in the next few years on the back of the government’s infrastructure plan.
In a statement, Moody’s said that the government’s credit profile is supported by a large and fast-growing economy and continued gains in debt affordability, in part because of revenue reforms.
“These positive features are balanced against low per capita incomes and low revenue-raising capacity when compared with other Baa-rated countries,” Moody’s said referring to the country’s investment grade credit ratings.
Moody also noted the country’s strong domestic demand and the economy’s limited reliance on foreign sources of financing, which shielded the Philippines from the direct impact of abrupt changes in the global macroeconomic and financial environment.
“Strong GDP [gross domestic product] growth could accelerate even further, especially if the government achieves higher spending on infrastructure,” Moody’s said.
The rating agency also expects further progress on improving public revenue on the back of additional reforms and ongoing enhancements in tax administration, which would also help keep government debt stable.
On the downside, Moody’s said that policymakers face challenges in managing current inflationary pressures.
Nevertheless, Moody’s expects the rise in prices since the beginning of 2018 to be temporary and not as a result of excessive overheating risks.
Moody’s also believes that the strong track record of the central bank in maintaining monetary and financial stability will prevail in the face of such headwinds.
“Moody’s would likely upgrade the sovereign’s rating if there is a marked convergence of per capita incomes and revenue generation — and with it, improved debt affordability — with higher-rated peers,” it said.
“Such a situation could materialize over time through continued progress on the government’s reform agenda, while policymakers avoid a build-up of inflationary pressures,” the agency added.
But Moody’s also warned that it could downgrade the sovereign rating if macroeconomic stability were to be threatened by unabated overheating pressures, leading to a deterioration in fiscal and government debt metrics and an erosion of the country’s external payments position.
“The reversal of reforms that have supported recent gains in economic and fiscal strength, and/or the implementation of prospective changes in governance structures in a way that diminishes fiscal strength would also likely lead to a rating downgrade,” Moody’s explained.