Debt watcher Moody’s Investors Service is upbeat about the Philippines’ recovery prospects from the COVID-19 crisis and expects the economy to outperform most countries until 2025.
Moody’s, in its latest credit analysis on the Philippines, 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.
The debt watcher said the recession in 2020 did not represent a material weakening of the Philippines’ growth prospects.
The rating agency said the Philippines was expected to grow 5.8 percent in 2021 and 6.5 percent in 2022.
It expects the Philippines to restore full-year GDP growth to 2019 levels by next year, ahead of rating peers like Panama, Uruguay and Mauritius which were expected to revert to pre-pandemic growth levels only by 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 in Malaysia and Vietnam and nearly 40 years in Thailand.
Moody’s 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 a virtual briefing on the Philippines credit rating on July 27.
Baa2 is a 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 recognized that since the pandemic broke out last year, the Philippines “endeavored 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.”
“The bold initiatives implemented by President Duterte since he assumed office, notably a prudent fiscal policy and tax reform, such as the Tax Reform for Acceleration and Inclusion Law and sin tax measures have put the country in a strong financial position to ride out the unprecedented global health and financial crises spawned by COVID-19,” Dominguez said.
“Moody’s seems as confident as us that the stimulus package and further reforms carried out by the President in response to the pandemic, including the Corporate Recovery and Tax Incentives for Enterprises and Financial Institutions Strategic Transfer laws as well as those still pending in the Congress, will ensure the Philippines’ recovery from the COVID-19 contagion and its return soon to the path of strong and inclusive growth,” Dominguez said.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the Philippine economy came prepared for the crisis.
“The country’s strong external payments position—evidenced in part by our hefty gross international reserves—which provide adequate buffers against global risks and shocks has helped maintain relative stability despite uncertainty caused by the pandemic,” Diokno said.
He said the BSP’s implementation of extraordinary liquidity measures such as purchases of government securities in the secondary market, helped financial markets run smoothly despite the crisis.
Diokno said the Philippine banking industry—aided in part by a sound regulatory environment—kept the impact of the crisis manageable and continued to support economic recovery and growth through credit activities.
“The BSP has done quite a lot of interventions since the onset of the pandemic, having lowered the key policy rate to a historic low and having injected around P2.2 trillion to the financial system. Our monetary policy will remain supportive of the economy as needed, until solid evidence of recovery is achieved,” Diokno said