The Duterte administration’s ambitious infrastructure program will help sustain robust economic growth, debt watcher Moody’s Investors Service said yesterday.
In a statement, Moody’s said “strong GDP (gross domestic product) growth could accelerate even further, especially if the government achieves higher spending on infrastructure.”
The government targets a 7- to 8-percent GDP growth yearly starting this year to 2022, with the massive infrastructure plan dubbed “Build, Build, Build” seen contributing to economic expansion and job creation.
Under “Build, Build, Build,” the government will roll out 75 “game-changing” flagship projects and spend some P9 trillion on hard and modern infrastructure until 2022 to usher in the “golden age of infrastructure.”
In the first half, government spending on infrastructure and other capital outlays jumped 41.6 percent year-on-year to P352.7 billion.
As such, “Moody’s expects the Philippines’ robust economic growth to be sustained over the next few years, as the government’s focus on infrastructure development reinforces the decade-long trend of increasing potential growth,” the debt watcher said.
Also, Moody’s said it was expecting further progress on improving government revenue on the back of additional reforms and ongoing enhancements in tax administration, which would also help keep government debt stable.
Moody’s was referring to the comprehensive tax reform program, the first package of which was signed by President Duterte last December.
Five more tax packages are pending in Congress covering corporate income taxation and rationalization of fiscal incentives, “sin” and mining taxes, property taxation, capital income taxation, as well as tax amnesty.
“On the downside, policymakers face challenges in managing current inflationary pressures,” Moody’s said.
Moody’s expects the rise in prices since early 2018 to be temporary and not a result of excessive overheating risks. It also believes that the strong track record of the central bank in maintaining monetary and financial stability will prevail.
Inflation hit 5.2 percent in June and averaged 4.3 percent in the first half, beyond the government’s full-year target range of 2-4 percent. The first-quarter GDP growth of 6.8 percent was below the full-year target.
“Moody’s would likely upgrade the sovereign’s rating if there is a marked convergence of per capita incomes and revenue generation—and with it, improved debt affordability— with higher-rated peers,” it said.
“Conversely, Moody’s could downgrade the sovereign rating if macroeconomic stability were to be threatened by unabated overheating pressures.”