Debt watcher Moody's Investors Service said Monday the COVID-19 pandemic delayed the Philippines' economic recovery, raising the prospects for long-term economic scarring.
"Pandemic risks have weighed on the Philippines' economic recovery compared with its more export-oriented peers in the Asia-Pacific, delaying fiscal consolidation and raising the prospects for long-term economic scarring," Moody's senior vice president Christian de Guzman said in a report.
"In particular, the revival of private investment would depend on a sustained restoration of business confidence," he said.
He said the Philippines' credit profile balances the pandemic fallout on the country's economic performance and fiscal position against a record of macroeconomic and financial stability, and a stable external payments position.
De Guzman said structural credit difficulties include a low per capita income and some constraints to political and legal governance, which is contrasted by strong policy effectiveness.
He said despite the significant rise in debt because of the pandemic shock, the Philippines sustained its strong debt affordability compared with its Baa2-rated peers.
"However, elections scheduled for 2022 raise uncertainties regarding the outlook for reform," he said.
He said the country's stable outlook reflects the view that the country's recovery from the acute pandemic shock will restore rapid economic growth compared with its peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics.
"This scenario is balanced against the risk that the economy's potential is damaged more significantly than Moody's assumes, or that fiscal and economic reform momentum does not resume, leaving the Philippines' economic and fiscal strength weaker, or both," he said.
He said factors that could prompt a rating upgrade include a more rapid reversal of the deterioration in fiscal and debt metrics stemming from the coronavirus shock.
"Conversely, a greater deterioration in fiscal and government debt metrics relative to peers or an erosion of the country's external payments position that threatens liquidity conditions could lead to a downgrade. The reversal of reforms that have supported prior gains in economic and fiscal strength, as well as a substantial deterioration in institutions and governance strength would also be negative," he said.