As my favorite market strategist puts it, the change in the economic outlook to “negative” by credit rating watchdog Fitch Rating is “writing on the wall” and that conditions may go downhill should the leadership continue to be dispassionate, even, oblivious.
The Fitch team visited the Philippines sometime late May or early June to re-assess the country’s performance and economic conditions. I guess the meeting was top secret that not one news media reported it.
Already, the news crescendo in the market reached its peak at dinnertime Monday shortly after Fitch released its latest assessment on the Philippines.
Informed about it, Finance Secretary Carlos “Sonny” Dominguez appeared seemingly nonchalant about it as if it was forthcoming. That was because he was briefed beforehand about it. The negative outlook was almost a given, reading the body language of the credit rating officials.
As an economic journalist, news such as this excites me, sends me frantic with all my network communication lines burning. And, I can fully empathize with those at the editorial desk with a page still open until an official comment is farmed out. Though, there’s online for updating, it’s also best to have the news included on print as it evolves.
It may not have a buzzing, trending effect on social media, particularly IG and FB because of the lingo, but its impact will have a meaningful effect on ordinary persons as it could trigger a spike in interest rates and a depreciation of the peso-dollar exchange rate.
So, what gives? It took a while, nearly three hours after Fitch’s decision was disseminated online at 6:33 A.M. Eastern Time that the reactions were sent by Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno and SecFin Sonny.
I fully subscribe to the explanation given by both that the country’s economic condition is “transitory.” Of course, everything is transitory. The challenges and risks caused by the pandemic will come to pass.
It’s not short-lived, though. The pandemic has eroded our life, with some resorting to unconventional ways to make ends meet. Others are plain lucky that the pandemic and the quarantine have paved the way for them to discover their hidden talents and made them more resilient with family cohesiveness as their support system.
The second semester will be a crucial period. Fitch and the other credit rating agencies – Moody’s Analytics, Standard & Poors Global Ratings– are literally breathing on our necks to see if we can rein in our ballooning deficit while macroeconomics remains stable despite the outside risk of rising prices of oil.
From the Fitch context, Moody’s on Wednesday tagged the country as an economic laggard among its regional peers. I had goosebumps knowing the agonizing hardships of economic managers to put in place structural reform measures to strengthen the domestic economy.
The question now is: will S&P take the same view? I heard from one camp about the possibility that S&P may maintain its May 2021 evaluation of “BBB+” rating and a “stable” outlook.
One reaction I received is virtually a complaint that the timing is off. Dangling the downward grade in the offing sends the country back to junk bond status or below investment grade is politically motivated. “They are doing this right before the election!”
This corner believes it’s not devoid of political color. Although Fitch “assumes broad policy continuity will be maintained given the Philippines' track record and sound medium-term policy framework,” there is still this dangling issue on the forthcoming presidential elections scheduled in May, 2022, which “create some uncertainty around the post-election fiscal and economic strategy.”
So, where do we go from here? Clearly, the situation, even without Fitch, is going to become very difficult or unpleasant. As I see it, such is a wake-up call for the electorate to be more circumspect in their choice of candidates and pick only those who should be able to shepherd the country out of this financial difficulty.
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