The Philippines’ credit profile has remained in a position of strength amid solid macro fundamentals even as concerns over corruption and weak rule of law continue to be a downside risk to the economy, debt watcher Moody’s Investors Service said.
In an Oct. 10 credit opinion on the Philippines, Moody’s said that among the country’s credit strengths are moderate public debt levels and improving debt affordability partly due to tax reform; robust growth potential given favorable demographics; as well as its resilient and stable banking system.
In particular, “strong domestic demand provides a buffer against external economic shocks, such as those posed by cyclical swings in global trade and commodities prices,” Moody’s said.
Also, “the Philippines’ young and growing population supports private consumption and reduces the burden of aging-related costs on the economy and government finances,” such that Moody’s graded the country’s economic strength as “high.”
Meanwhile, Moody’s designated a score of “moderate plus” to the Philippines’ institutional strength as “effective monetary policy has contributed to overall macroeconomic stability and a generally sound financial system.”
“The Bangko Sentral ng Pilipinas (BSP), the country’s central bank, has a strong record of maintaining monetary and financial stability. Notwithstanding the short-lived spike in inflation in 2018, which was driven by a confluence of factors such as higher global oil prices and a rapid increase in domestic rice prices, headline inflation has been kept within the BSP’s target band for much of the past decade,” it said.
In terms of debt management, Moody’s noted that the Bureau of the Treasury “proactively manages the debt structure, lengthening the average maturity of its debt to reduce refinancing risks and retiring high-interest rate debt securities to lower debt-servicing costs.”
As such, Moody’s said the Philippines scored “moderate” in terms of fiscal strength.
However, Moody’s identified the following credit challenges: low per capita incomes and revenue mobilization compared to the Philippines’ peers with the similar Baa2 stable investment-grade credit ratings; and weak control of corruption and rule on law, which both weigh on institutional capacity.
Moody’s nonetheless said that the political risks have yet to constrain the economic and fiscal reform agenda.
“Our ‘low plus’ assessment of political risk incorporates a low probability of the emergence of political stress that could have a moderate impact on the country’s economic and fiscal performance. The confrontational nature of the administration’s focus on security and illegal drugs, as well as other political controversies, have thus far not weighed on economic growth or derailed fiscal reform,” according to Moody’s. —BEN O. DE VERA