Moody’s backs PHL sovereign rating if reforms pass Congress

THE Philippine credit profile will remain intact despite the pandemic, provided that Congress manages to avoid political distractions and passes reforms urgently needed for recovery, according to Moody’s Investors Service.

The Philippines’ Baa2 sovereign rating and stable outlook, which was affirmed earlier this month, is deemed likely to withstand the risks posed by the pandemic, due to the manageable and affordable debt burden, with the government also improving its revenue potential, according to Christian de Guzman, a Moody’s senior vice-president with its Sovereign Risk Group.

“The progress in terms of increasing revenue by this administration and the past administration over time, it really is remarkable in terms of how much they’ve improved revenue as compared to other Baa2 peers that have seen declining revenue,” he said in an online briefing Thursday.

Mr. De Guzman said despite seeing a 10 percentage-point rise in the debt to gross domestic product (GDP) ratio this year due to pandemic-related borrowing, debt levels remain “comparatively mild” compared to other Baa2-rated sovereigns. The debt-to-GDP ratio in 2019 was a record low 39.6%.

The Baa2 rating is a notch above investment-grade while the “stable” outlook suggests the rating is likely to be maintained over the next six months to two years.

“The other part of our assessment was that we saw that the Philippines’ external strengths remain intact so there is no worsening of external vulnerability in our estimation,” Mr. De Guzman said.

He added their ratings review also considered the country’s institutional strengths and political risk.

Mr. De Guzman said legislators are prone to a “great deal of distraction” as shown “by the fact that they are focusing on other issues such as the Anti-Terrorism bill and the ABS-CBN franchise.”

“The challenge for Congress is to really move forward with meaningful economic and fiscal reform,” he said.

In June, Moody’s forecast that Philippine GDP in 2020 will contract by 4.5%, much worse than its view of a 2% contraction issued in May. Its pre-pandemic outlook for the year before the pandemic hit was for growth of 6.2%.

It upgraded its view on 2021 to 6.5% growth from 6.4%, citing base effects from a weak 2020. — Luz Wendy T. Noble