Moody’s affirms ‘Stable’ rating on PH

In a statement issued Friday night, Moody’s said domestic growth continues to get a boost “from a large and fast-growing economy” and “moderate government debt levels.” (Gil C / Shutterstock.com)

MANILA — Debt rater Moody’s Investors Service on Friday affirmed the Philippines’ long-term local and foreign currency issuer rating at ‘Baa2’ with Stable outlook after noting the economy’s robust expansion, improving fiscal situation and debt affordability.

In a statement issued Friday night, Moody’s said domestic growth continues to get a boost “from a large and fast-growing economy” and “moderate government debt levels.”

These factors balance the low per capita income and “still low revenue-raising capacity as compared to similarly rated peer countries,” it said.

Moody’s decision came two days after Fitch Ratings made the same decision on account of favourable growth outlook.

The credit rater said economic shocks are seen to be cushioned by the “relatively large economy and high growth potential”.

Proven ability to sustain macroeconomic and financial stability is also a plus for the Philippines, it said, noting that the government has implemented policies that ensured stable and low debt levels.

Thus, it projects general government debt to remain low vis-a-vis the similarly-rated countries at 38 percent of domestic output. “The country’s favorable demographics support steadily rising labor inputs and potential growth, while reducing the burden of ageing-related costs on government finances,” the statement said.

Improvement of the residual maturity of the government’s debt, at about 12 years of foreign debt and 7.6 years for domestic debt, enables the government to finance its obligations, Moody’s said. “Moreover, large foreign exchange reserves and low economy-wide external debt contribute to macroeconomic stability,” it said.

“More generally, relatively low reliance on either foreign sources of income or financing insulates the Philippines from the direct impact of abrupt changes in the global macroeconomic and financial environment,” it noted.

The debt rater also expects the government’s infrastructure program to be well-financed given the reforms in the tax system.

The Tax Reform for Acceleration and Inclusion (TRAIN) law, implemented since the start of 2018, is seen to increase state revenues from 15.6 percent of domestic output in 2017 to 16.2 percent this year and 16.7 percent next year. “A permanently higher revenue intake will provide some additional fiscal room for higher spending, in particular on infrastructure,” the statement said.

Meanwhile, Moody’s expects the increase in domestic inflation to be transitory but pointed out that sustained pressure on the peso and capital inflows as well as the deficit of the current account “pose material challenges to policymakers in ensuring that inflation expectations and inflation pressure are contained.”