RECESSION in the country will not reverse the recent gains in its ascent toward the “A” credit rating, the Bangko Sentral ng Pilipinas (BSP) chief said on Friday.
In a statement sent to reporters on Friday, BSP Governor Benjamin Diokno said the risk that the Philippines will suffer a credit rating downgrade is “highly unlikely” despite the 16.5-percent decline in the country’s gross domestic product (GDP) in the second quarter of the year.
“The sharp fall in Q2 GDP does not pose a danger to the Philippines strong macroeconomic fundamentals: relatively low debt-to-GDP ratio, one of the highest tax effort in the region, benign inflation and well managed inflation expectations, strong peso, hefty gross international reserves, well capitalized banking system with low non-performing loans,” Diokno said.
In the first half of the year, the Philippines was spared—partly owing to what was described as its resilience—from widespread downgrades and outlook changes due to the negative economic effects of the global pandemic. Credit watchers have downgraded 82 sovereigns and revised to negative outlooks 104 sovereigns.
The most recent affirmation was from Moody’s Investors Service. In mid-July, the ratings agency affirmed the country’s Baa2 ratings and kept its outlook at “stable.” Their baseline forecast then was a 4.5-percent contraction in the Philippines’s GDP for 2020.
However, the country clocked in a double-digit GDP contraction in the second quarter and analysts believe overall economic activity in the country will remain subdued as infected cases continue to rise in the Philippines.
Still, Diokno said economic managers in the country are confident that recovery is under way and that credit ratings will continue to outperform peer countries.
“The economic managers view the economy’s plunge in the second quarter as temporary, resulting from the strict and comprehensive lockdown during the period owing to the coronavirus pandemic. But the recovery process is on its way and we expect a strong rebound of 6.5 to 7.5 percent in 2021,” Diokno said.
“We should look beyond the current crisis. We should craft a strong economic recovery program accompanied by more structural reforms that would allow the Philippines to rebuild better for the future,” he added.