PH remains resilient — Moody’s
Global debt watcher Moody’s Investors Service said Monday the Philippines’ rating is resilient to slowing growth in Asia, as the country is expected to sustain economic strength over the next couple of years.
Moody’s said un a credit analysis on the Philippines the country’s Baa2 government bond rating reflected the resilience of its economy to the current headwinds affecting neighboring countries and other emerging markets.
“Further, the stable outlook reflects Moody’s expectation that positive economic and fiscal trends will be sustained over the next one to two years. However, these will be balanced against the persistent weaknesses in the sovereign’s credit profile,” Moody’s said.
Moody’s said it examined the sovereign rating in four categories, such as economic strength, which was assessed as “high”; institutional strength, “moderate (+)”; fiscal strength, “moderate”; and susceptibility to event risk, “low”.
The report was an annual update to investors and not a rating action.
Moody’s said domestic demand in the Philippines cushioned the effects of weaker exports amid slowing growth in much of the Asia-Pacific region.
It said risks to the government’s external liquidity and funding conditions arising from the prospective tightening by the US Federal Reserve were manageable.
“Internally, although political noise has increased ahead of general elections next year, Moody’s does not expect the improvements in institutional strength to reverse. Reform momentum has been largely sustained, leading to improved assessments of competitiveness and governance,” it said.
Moody’s, however, said bottlenecks in fiscal expenditure continued to weigh on growth and could threaten the government’s capacity to meet its goal of increasing infrastructure spending to at least 5 percent of gross domestic products by 2016.
“Nevertheless, the government’s public-private partnership program has gained some traction, following a slow start at the outset of the Aquino administration,” it said.
Moody’s said the government’s debt as a share of GDP was expected to decline for the fifth consecutive year in 2015 as fiscal deficits remained lower than budgeted.
Both public and private sectors also relied less on cross-border sources of financing in recent years, leading to improved external debt ratios and lowering the country’s susceptibility to volatile capital flows, it said.
“Nevertheless, the government’s revenue—as measured against GDP—is low and debt affordability remains weak when compared to investment-grade peers, although both ratios have improved in recent years,” Moody’s said.
Moody’s said the relatively high proportion of government debt denominated in foreign currency rendered the Philippines susceptible to currency risks, although this has also improved recently.
Moody’s, however, said the country’s GDP per capita was among the lowest for investment-grade countries.
Moody’s upgraded the Philippines’ rating to Baa2, a notch above the minimum investment trade, in December 2014, citing the country’s declining debt burden, favorable growth prospects amid rising investments, and resilience to external risks. The outlook was stable.
Moody’s rating of the Philippines was better than Indonesia’s Baa3 (stable) and Vietnam’s B1 (negative). However, the Philippines still lags behind Singapore’s Aaa (stable), Malaysia’s A3
(stable), and Thailand’s Baa1 (stable).
Moody’s rating of the Philippines put it at par with that of Standard & Poor’s.