Moody’s upbeat about Philippines’ recovery prospects

Bangko Sentral ng Pilipinas

Moody’s Investors Service is upbeat about the Philippines’ recovery prospects from the COVID-19 crisis, expecting the economy to outperform most of the sovereigns it rates in terms of average growth up to 2025.

In its latest credit analysis report on the Philippines, the international debt watcher cited its 10-year average growth projection for the Philippines for the period 2016 to 2025 at 4.8 percent—despite the sharp contraction last year resulting from the pandemic.

“Although this 10-year average includes the steep recession in 2020 associated with the global coronavirus pandemic, we expect the Philippines to grow faster than nearly 85 percent of rated sovereigns,” Moody’s said in the report released on 26 July 2021.

The debt watcher believes the recession in 2020 does not represent a material weakening of the Philippines’ growth prospects.

For 2021 and 2022, the rating agency placed its growth forecasts for the Philippines at 5.8 percent and 6.5 percent, respectively. It expects the Philippines to restore full-year GDP growth to 2019 levels in 2022, ahead of rating peers like Panama, Uruguay, and Mauritius which are expected to revert to pre-pandemic growth levels only in 2023 or beyond.

Higher government spending, such as on infrastructure, will be among the growth drivers for the Philippines this year and next, it said. To accelerate economic recovery, Moody’s highlighted the importance of restoring business confidence to revive private domestic investments.

The country also benefits from a growing working-age population, which significantly contributes to potential economic growth, Moody’s said. The Philippines’ median age is around 25 years old, compared with more than 30 years old in Malaysia and Vietnam, and nearly 40 years old in Thailand.

Moody’s last formally affirmed the Philippines’ “Baa2” rating and the stable outlook in July 2020. Following the review meetings conducted in June this year by its analysts with resource persons from the government and the private sector, Moody’s regarded the Philippines’ Baa2 rating and the stable outlook as well placed.

“The Philippines Baa2 rating and stable outlook remain intact…. We have already incorporated in our assessment many of the developments that transpired over the past year including the negative impact of the pandemic shock,” said Christian de Guzman, Moody’s Senior Vice President and lead sovereign analyst for the Philippines during the virtual briefing on the Philippines credit rating held last July 27.

Baa2 is one notch above the minimum investment grade. The “stable” outlook indicates that the upside and downside risks are balanced and that the rating is unlikely to change within the short term.

Reacting to the latest commentary from Moody’s, Finance Secretary Carlos Dominguez III said: “Moody’s has apparently recognized that ever since the pandemic broke out last year, the Philippines has endeavoured to strike a balance between accelerated spending on COVID-19 response by boosting healthcare capacity and aiding vulnerable sectors, on one hand, and observing fiscal discipline, on the other, so that the anticipated rise in state expenditure will not result to an unmanageable debt situation.”