Despite headwinds, PH seen keeping investment-grade rating

The Philippine government might maintain an investment-grade rating of Baa2 with a “stable” outlook from Moody’s Investor Service as the creditworthiness watchdog sees public-sector debt stock and debt servicing improving.

This, despite risks that debt reduction and economic reform might stall because of rising interest rates and with global foreign exchange markets dominated by a still-ascending US dollar.

Moody’s senior vice president Christian de Guzman said in a press briefing the Philippines’ expected recovery to prepandemic positions will restore rapid economic growth compared to the country’s peers.

De Guzman said this was so despite some lingering uncertainty related to the pandemic and the economic environment across the rest of the world.

He said the national government’s debt stock is expected to peak in 2022, which was pegged at P12.8 trillion or about 62 percent of gross domestic product (GDP) as of June, and stabilize on the back of gradual fiscal consolidation.

Sustained reduction

“The pandemic reversed gains in sustained debt reduction since the late 2000s, but the level is at about the median across comparable countries across the world,” De Guzman said. “The debt stock of the government in general continues to be in line with the [credit] rating.”

In terms of debt affordability, reckoning interest payments against revenues, the Philippines is seeing a deterioration over three years with the pandemic from single-digit level in 2019 toward 10 percent as the end of 2022.

“Still, this is better than during the Arroyo administration when the debt stock was also above 60 percent of GDP but interest payments represented about one-third (33 percent) of revenues,” De Guzman said.

Factors that could change the outlook to negative or prompt a downgrade include a further deterioration in fiscal and government debt metrics; erosion of external payments position that threatens liquidity conditions; and a reversal of reforms that supported previous gains in economic and fiscal strength.

On the other hand, factors that could change the outlook to positive or prompt an upgrade include a more rapid reversal of the deterioration in fiscal and government debt metrics from pandemic shock; and a resumption of sustained high growth and rapid restoration of fiscal strength, which would imply effectiveness of macroeconomic and fiscal policy.