Debt watcher Moody’s Investors Service said it is keeping the stable outlook on its investment-grade Baa2 credit rating for the Philippines, given the country’s strong economic fundamentals that offset export weakness and capital outflows.
Moody’s also maintained the ratings of five other Asian countries including India (Baa3 positive), Indonesia (Baa3 stable), Malaysia (A3 positive), Singapore (Aaa stable) and Thailand (Baa1 stable).
Moody’s upgraded the Philippines’ rating to Baa2 from Baa3 on Dec. 11, 2014 with a stable outlook. The Baa3 rating, meanwhile, was given on Oct. 3, 2013.
“Exchange rate pressures may persist in 2016 as China’s slowdown curbs export growth and US monetary policy tightening weakens net capital inflows… Nonetheless, we maintain stable or positive rating outlooks on the six above sovereigns,” it said in a report Monday.
“While export weakness and capital outflows are credit negative, currency flexibility combined with respective governments’ ongoing efforts to improve macroeconomic conditions offset these trends,” Moody’s said.
Moody’s said portfolio investments dominated both Malaysia and the Philippines’ international investment liability positions. In Malaysia’s case, recent portfolio flow movements have reflected uncertainty around domestic political developments and global risk aversion toward emerging markets, particularly those with commodity exposure.
“On the other hand, capital outflows from the Philippines have been quite mild given its strong economic fundamentals and relatively stable policy outlook,” Moody’s said.
The debt watcher also said that aside from its impact on the exchange rate, capital outflows had knocked reserve levels in the Asean-5 excluding the Philippines.
“Reliance on international flows that can enter and exit rapidly can exacerbate a country’s exposure to external pressures, particularly at times of global capital market uncertainty. It can also destabilize domestic economic and financial conditions,” it said.
Moody’s said earlier it was expecting a stable outlook for the Philippine banking system in the months ahead due to a resilient domestic economy.
However, Moody’s said lenders’ current strong capital levels were likely to decline slightly “as banks continue to grow their assets to tap demand from segments that had lacked access to credit, particularly the high-yielding consumer segment.”