Recent security and political developments, including the declaration of “state of lawlessness” by President Rodrigo Duterte, will not pose immediate impact on the investment-grade credit rating of the Philippines, global debt watcher Moody’s Investors Service said Wednesday.
Moody’s, however, warned that business confidence and economic outcomes could be affected if these events led to prolonged uncertainty.
A bomb blast in Davao City killed 14 innocent civilians Friday, forcing Duterte to declare a “state of lawlessness” nationwide the following day.
“The near-term sovereign credit impact of these developments is limited as we do not expect them to change economic and fiscal policies or outcomes,” Moody’s said in a report.
“However, if recent events lead to prolonged uncertainty around security or economic policy, such a development would eventually dampen business confidence and, consequently, economic outcomes,” it said.
Moody’s said while Mindanao had about 24 percent of the Philippine population, it only accounted for 14.8 percent of gross domestic product in 2015 and contributed 0.8 percentage point to the real GDP growth of 5.9 percent last year.
“At this stage and, as long as the interventions under the state of lawlessness do not affect businesses nationwide, we assume that investment decisions will not be materially affected,” it said.
Moody’s said it was not expecting any shift in economic policy stemming from last weekend’s developments.
“We have assessed the Philippines’ susceptibility to political risks as low. We do not believe that a significant intensification of the security response—such as an imposition of martial law, which requires congressional approval —is likely, given the current system of checks and balances. In particular, the government has stated that the declaration of state of lawlessness calls for a stepped-up security presence without a suspension of civil liberties,” Moody’s said.
Moody’s said the main challenge facing Philippine policymakers was how to sustain the positive trajectory of institutional quality through the political cycle.
The Philippines enjoys an investment grade rating of Baa2 from Moody’s with a stable outlook.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. earlier said the flow of investments in the country would not be affected by the declaration of “state of lawlessness.”
Tetangco said the objective of the president’s move was apparently to improve peace and order in the country.
Tetangco said, however, the government should explain better the objectives of the government policies to avoid any possible misunderstanding. “We must avoid the lack of information that could lead to a different picture,” he said.