Global debt watcher Moody’s Investors Service said Wednesday it expects the Philippines to sustain its growth momentum, as the government’s focus on infrastructure development reinforces the decade-long trend of increasing potential expansion.
“Strong GDP growth could accelerate even further, especially if the government achieves higher spending on infrastructure. Moody’s also expects 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 said.
Moody’s conclusions are contained in the newly released credit analysis titled “Government of the Philippines”•Baa2 Stable”.
The report examined the sovereign in four categories, such as economic strength, which Moody ’s assessed as “high”; institutional strength “moderate (+)”; fiscal strength “moderate”; and susceptibility to event risk “low (+)”.
The report was an annual update to investors and not a rating action. Moody’s said the stable outlook on the Philippines’ sovereign rating indicated that upside and downside risks were balanced.
“The credit profile of the government of the Philippines [Baa2 stable] is supported by a large and fast-growing economy and continued gains in debt affordability, in part because of revenue reforms,” it said.
“These positive features are balanced against low per capita incomes and low revenue-raising capacity when compared with other Baa-rated countries,” it said.
Finance Secretary Carlos Dominguez III said Tuesday the government was eyeing to raise P3.2 trillion in revenues in 2019, including about P181.4 billion from tax reform implementation. The first package of the Comprehensive Tax Reform Program or the Tax Reform for Acceleration and Inclusion took effect in January, which reduced the personal income taxes but raised the taxes on alcohol, tobacco, and automobiles.
The second package that aims to corporate income taxes and rationalizes fiscal incentives were already submitted to Congress. The Finance Department expects lawmakers to support it to meet the timetable set by President Rodrigo Duterte.
Moody’s said strong domestic demand and the economy’s limited reliance on foreign sources of financing shielded the Philippines from the direct impact of abrupt changes in the global macroeconomic and financial environment.
The government expects the gross domestic product to grow between 7 percent and 8 percent this year, on the back of higher fiscal spending, robust domestic demand, and investments. GDP grew 6.8 percent in the first quarter, faster than the 6.5-percent expansion a year ago.
Moody’s said, however, that policymakers could face challenges in managing current inflationary pressures. Moody’s expects the rise in prices since the beginning of 2018 to be temporary and not as a result of excessive overheating risks.
The BSP so far increased interest rates twice this year”•in May and June”•by 25 basis points each to 3.5 percent in a move to rein in inflation, which averaged 4.3 percent in the first half, beyond the 2018 target range of 2 percent to 4 percent.