The United Kingdom’s vote to leave the European Union (EU) would not have any significant impact on credit ratings of economies across the Asia-Pacific region, including the Philippines, debt watcher Moody’s Investors Service said Monday.
Moody’s, however, said “dependence on external finance poses a vulnerability for some countries,” especially since the Brexit is expected to result in volatile markets globally.
In a report titled “Sovereigns—Brexit and Asia Pacific: Limited Direct Credit Impact; Some Sovereigns Exposed to Market Volatility,” Moody’s noted the UK’s trade linkages with the region were “generally limited.”
For instance, Cambodia, the Asia-Pacific country supposedly most exposed to the Brexit tragedy, was seen to weather the volatile situation. Cambodia’s exports to the UK are worth 5.8 percent of its gross domestic product (GDP).
“As a result, Moody’s does not foresee a large impact on trade or GDP growth in the region. Only in severe downside scenarios involving a sharp and prolonged negative confidence shock to the EU economy would GDP growth in Asia-Pacific be materially lower,” it said in a statement.
However, Moody’s said financial market volatilities expected to be triggered by Brexit “would hurt growth in countries where fiscal and monetary policy space is already constrained,” especially when it results in “tighter external financing conditions.”
“Out of those Asia-Pacific countries that have large current account deficits, Mongolia relies in part on private sector financing flows. In addition, both Mongolia and to a lesser extent Sri Lanka have significant debt repayments due in 2016,” Moody’s said.
“In addition, elevated government debt in both countries would constrain fiscal policy room to offset the impact of weaker external flows on GDP growth,” Moody’s added.