Moody’s Ratings has kept the Philippines’ investment grade rating due to recent economic reforms, but flagged persistent pressures brought on by higher debt levels, rising interest rates, and tensions with China.
In a statement on Friday, Moody’s Ratings affirmed the country’s “Baa2” credit rating with a “stable” outlook, meaning changes in the rating are unlikely in the next 18 to 24 months.
READ: Moody’s: At 5% growth for 2024, PH still an underachiever
A credit rating is a measure of an entity’s capacity to settle its debts. An investment grade rating implies a low risk that the borrower will be unable to pay its obligations.
Explaining its decision, the credit rater said that the government’s recent economic reforms to attract foreign investment are expected to boost the country’s long-term growth. However, it expects the debt burden to stay higher than prepandemic levels.
Steady household spending
For the second quarter, the country expanded by 6.3 percent, accelerating from the 5.8-percent growth in the previous quarter. The expansion placed well within the government’s 6- to 7-percent target for the year.
Moody’s expects the country’s growth to be buoyed by steady household spending as the effects of El Niño dwindle and the reduction in rice tariffs help lower food prices. To add, investments and increasing exports are expected to contribute to robust expansion, supported by a recovery in electronic exports, gradual increases in business process outsourcing revenues, and a rebound in international tourism.
READ: PH projected to be among Asia-Pacific ‘outperformers’
Despite this, Moody’s highlighted that the ongoing geopolitical tensions with China also pose a risk to the rating.
“The rating also considers weakening debt affordability amid higher interest rates and a weaker Philippine peso,” Moody’s said.
Moody’s said that debt affordability is expected to worsen over the next two years despite the central bank’s recent policy rate cut.
The Monetary Board last week cut its policy rate by 25 bps, reducing the key rate to 6.25 percent. This was the first rate cut in almost four years or since November 2020, during the height of the pandemic.
Meanwhile, Bangko Sentral ng Pilipinas Governor Eli Remolona, Jr. welcomed the credit rating, noting that the central bank is balancing its efforts to maintain stable prices, which is essential for ensuring steady and sustainable economic growth.