Heed past lessons to avoid deeper plunge

Published July 19, 2021, 12:12 AM

by Manila Bulletin

An announcement from Fitch Ratings last July 12 has set off alarm signals as the nation continued to grapple with COVID-19:

“The revision of the Philippines’ outlook to Negative reflects increasing risks to the credit profile from the impact of the pandemic and its aftermath on policy-making as well as on economic and fiscal out-turns. Fitch believes there are downside risks to medium-term growth prospects as a result of potential scarring effects, and possible challenges associated with unwinding the exceptional policy response to the health crisis and restoring sound public finances as the pandemic recedes.” the ratings agency noted.

Fitch, however, affirmed the country’s ‘BBB’ rating thus:  “The rating affirmation reflects the Philippines’ robust external buffers and projected government debt levels that, while rising, should remain just below the median for ‘BBB’ rated peers. These are balanced against low per capita income levels and indicators of governance and human development compared to peers.”

Before the pandemic’s onset in February 2020, Fitch issued a BBB rating and a “Positive outlook.”  In May 2020, after the imposition of a nationwide quarantine, Fitch revised its outlook to “Stable.:  The latest “Negative outlook” reflects a progressive decline in the rating agency’s assessment of the quality of governance in the country.

Government must level up on its response to the COVID-19 crisis.  Despite growing clamor from Congress for increased stimulus to enable millions of families to recover from the recession, the country’s economic managers have firmly asserted that fiscal discipline must prevail. Fitch notes, however, the weakening of the country’s fiscal footing as debt-to-GDP ratio has risen sharply to 52.7 percent from only 34.1 percent in 2019.

The concern about “scarring effects” flags the severe impact of the economic downturn. There are no quick fixes.  While vaccination efforts have been ramped up, the government’s ability to safely reopen the economy and thereby boost economic output, still leaves much to be desired.  Only last month, the business sector expressed concern on the government’s deficiency in terms of streamlining regulations to boost recovery efforts.

It is best that government heed this wake-up call lest it place in jeopardy the country’s investment grade rating that was attained in March 2013 during the stewardship of then President Benigno S. Aquino III.  To its credit, the Duterte administration retained the seal of good economic housekeeping from 2016 to 2020— only to be whip-lashed by the COVID-19 scourge.

All eyes are on the political leadership.

The record shows that global credit ratings hinge importantly on how well the President steers the ship of state.  During the Arroyo administration, the country’s ratings and outlook took a nosedive in the aftermath of the ‘Hello Garci’ election controversy.  From late 2002 till early 2003, another downgrade was recorded after a series of bloody terrorist attacks in Zamboanga. In late 2000 through early 2001, these ratings plunged due to the Estrada impeachment trial and the EDSA 2 upheaval.

By heeding past lessons, such dire outcomes could certainly be consigned to history’s dustbin.