ECONOMIES prone to illicit trade, including the Philippines, will find it difficult to obtain the highest credit ratings if their regulatory regimes and institutions remain entangled in corruption, a report has concluded.
In a study, titled “The Link Between Illicit Trade and Sovereign Credit Ratings,” by Transnational Alliance to Combat Illicit Trade (Tracit), it was deduced that countries dealing with the issue of illegal exchange of products and services tend to secure lower ratings from credit rating agencies.
On the contrary, economies with high scores on capacity to fight illicit trade also had the highest credit ratings.
“Where a country’s underlying conditions make it vulnerable to illicit trade, it has fewer prospects…to create legitimate employment, improve economic performance or move away from informal economic activity,” the study reported.
“These circumstances underpin credit rating determinations by international rating agencies and can result in lower credit rating scores, with the unfortunate consequence of further dampening the economic and financial forecast and nurturing the perpetuation of the structural conditions where illicit trade proliferates,” it added.
Singapore leads
In Southeast Asia, for one, Singapore had the highest score in combatting illicit trade based on the Global Illicit Trade Environment Index (Gitei) at 71.1, and also maintains a perfect AAA, Aaa and AAA from S&P, Moody and Fitch, respectively.
In the upper middle quartile is Malaysia with a 60.3 score from Gitei, and an A-, A3 and A- from the three major credit rating agencies. Kuala Lumpur is followed by Bangkok that secured 59.8 from the latest Gitei, and keeps credit scores of AA-, Aa3 and AA-.
On the lower middle quartile, the Philippines, Vietnam and Indonesia received scores between 45 and 50 from Gitei, and all three are working on raising their B ratings.
Cambodia placed among the last in Gitei with a rating of 30.6, and is only rated by Moody with a B2.
“The bottom line is that governments should prioritize and increase efforts to combat illicit trade, and the underlying conditions that facilitate it, because of the severe repercussions it has on society, the economy and development, and because it is in their own financial interest to do so,” the report concluded.
Image credits: Nonie Reyes