Global think tank Fitch Solutions has raised the Philippines Short-Term Political Risk Index Score, while London-based Oxford Economics warned of potential credit downgrades for the country if expansionary deficit spending is pursued by the incoming new administration, after unofficial results showed that Marcos had won the presidential election with a landslide victory.
“We at Fitch Solutions have raised our Short-Term Political Risk Index Score for the Philippines higher to 66.5 out of 100, from 64.0 previously, after unofficial results showed that Ferdinand ‘Bongbong’ Marcos Jr. had won the May presidential election with a landslide victory,” the think tank said in its May 10 report.
The report further observed that the May 9 election also “marks the first time that a candidate has won by a majority since the 1986 People Power Revolution that toppled his father’s two-decade rule.”
In a separate report, UK-based think tank Oxford Economics also said that Marcos Jr. could pursue an expansionary deficit spending that “could lead to credit ratings downgrades and increased risk aversion for Philippine’s assets.”
This as Oxford Economics said the next administration will need to strike a better balance between supporting the country’s economic recovery and containing the government's burgeoning debt load.
Thus, given the government’s very limited fiscal space following the pandemic, Oxford Economics warned that any further expansion of deficit spending could result in “credit ratings downgrades” and increased risk aversion for Philippine's assets.”
Further, the think tank noted of a strong possibility of Macros Jr. adopting a more expansionary fiscal agenda than it currently forecasts. Oxford anticipates public spending of 23.8 percent of gross domestic product (GDP) this year.
The public spending ratio, equivalent to P5.012 trillion, is only marginally less than indicated by the 2022 national budget.
“But the new administration could increase spending on items such as more cash handouts to reduce the rising cost of living facing households or tax relief, without any substantial revenue generating policies or clarity over the path of medium-term fiscal consolidation,” Oxford Economics said.
While the additional fiscal spending would support the recovery, it would undoubtedly catch the attention of the major rating agencies, Oxford Economics said.
If the country’s credit rating is downgraded, Oxford Economics said this would weigh on the recovery in domestic demand for this year.
Debt-watcher Fitch Rating already lowered the Philippines outlook to negative in July last year.
A possible outlook revision by other rating agencies or an outright rating downgrade would push up borrowing costs that have already risen significantly this year, amid tighter global monetary conditions.
Meanwhile, both think tanks expect continue in some policies of the Duterte administration.
Oxford Economics expects some policy continuity under a Marcos leadership, like the “Build, Build, Build” infrastructure program of President Duterte, with capital outlays worth P981 billion.
“This bodes well for the investment and construction outlook, despite the rising costs of construction,” the think tank said.
“We expect a smooth transition to the Marcos administration from the outgoing Duterte administration, with little changes in policy direction,” FitchSolutions said.
“Marcos is likely to continue to focus on infrastructure development on the economic front, while striving to maintain a delicate balancing act between the US and China in terms of foreign policy,” it added.