INTERNATIONAL credit watcher Moody’s Investors Service announced on Thursday that it affirmed the Philippines’s rating on the back of the country’s ongoing recovery amid turbulent times.
In a statement, Moody’s said the Government of the Philippines’s long-term local and foreign currency issuer and senior unsecured ratings remains at Baa2. The outlook remains stable.
“In Moody’s view, the rebound in economic activity since mid-2021 has been strong and will be resilient to the current challenges posed by the turn in global credit conditions over the near-term,” the ratings agency said.
Moody’s, however, warned that while the challenging global credit conditions are not expected to derail the Philippines’s ongoing recovery from the coronavirus pandemic, the severity of the pandemic shock has led to an erosion in the rating agency’s assessment of economic strength.
Moody’s added that continued policy orthodoxy and commitment to reform amid political transition will help assure gradual fiscal repair following the reversal of the strengthening of the government’s fiscal and debt metrics resulting from the pandemic.
“The Philippines also retains fundamental strengths with regards to the stability of its banking system and the capacity to meet external debt repayments, notwithstanding cyclical pressures on the balance of payments and consequent exchange rate depreciation,” Moody’s added.
Stable outlook
The rating was assigned a stable outlook, which means that it is unlikely to be changed in the next 12 to 18 months.
Moody’s has also affirmed the government’s foreign currency senior unsecured shelf rating at (P) Baa2 and the senior unsecured ratings for the liabilities of the country’s central bank, Bangko Sentral ng Pilipinas (BSP) at Baa2.
The ratings agency also said it “sees sufficient momentum” to support real GDP growth of 6.6 percent for 2022 and 6.2 percent for 2023, as price pressures are set to moderate as commodity prices ease from peaks recorded earlier this year.
“Over the long term, Moody’s continues to view the Philippines as characterized by higher economic growth relative to most Baa-rated peers, with favorable demographics balanced against a heightened susceptibility to environmental risks given the high incidence of climate-related shocks,” Moody’s said.
“However, strict and prolonged pandemic containment restrictions contributed to a delayed recovery from the coronavirus shock, in turn leading to severe economic scarring—as represented by one of the largest cumulative economic output losses among rated sovereigns—and a deterioration in Moody’s assessment of economic strength,” it added.
While Moody’s does not expect a material change to influence the ratings of the country, the ratings agency said it would consider upgrading the Philippines’s sovereign rating upon evidence of a more rapid reversal of the deterioration in fiscal and debt metrics stemming from the coronavirus shock.
“This would likely entail a sustained restoration of economic growth to rates similar to those recorded prior to the pandemic. Together, a resumption of sustained high growth and rapid restoration of fiscal strength would denote particularly effective macroeconomic and fiscal policy,” Moody’s said.
On the other hand, factors that would prompt a downgrade of the Philippines’ sovereign rating include 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.
“The reversal of reforms that have supported prior gains in economic and fiscal strength, as well as substantial deterioration in institutions and governance strength, would also be negative,” it said.