Despite a weak performance during the first two quarters of the year, the Philippine economy is expected to recover from a “temporary slowdown,” credit watcher Moody’s Investors Service said Friday.
The Duterte administration has put the blame on the delayed enactment of the 2019 national budget, compelling the government to operate on a reenacted budget during the first quarter of the year.
It also cited the ban on public works during the campaign period in the run up to the mid-term elections last May.
“Against the backdrop of weakening external demand, we expect economic growth to recover from the temporary slowdown precipitated by the budget delay in the first half of 2019,” Moody’s said in its annual credit analysis.
It was the slowest in 4 years since the GDP expanded by 5.1% in the first quarter of 2015.
Moody’s noted the “momentum for fiscal reform has been sustained, improving prospects for a further improvement in the Philippines’ fiscal profile.”
Broad macroeconomic and financial stability remain intact, the credit watcher said, noting the headline inflation has been restored to within the central bank’s target of 2% to 4%, “while the balance of payments has remained stable despite a widening … trade deficit.”
The Philippines’s credit profile of “Baa2” with stable outlook is “supported by a large and fast-growing economy and continued gains in debt affordability, in part because of revenue reforms,” according to Moody’s.
Obligations rated “Baa2” are subject to moderate credit risk and are considered medium grade and may possess certain speculative characteristics.
“Longterm economic prospects are bolstered by favorable demographics, strong human capital and the government’s current infrastructure push,” the credit watcher said.
“The stable outlook on the Philippines’ rating incorporates our view that strong GDP growth relative to rating peers could accelerate even further, especially if the government achieves its goal of higher infrastructure investment,” Moody’s noted.
It also expects further progress on improving government revenue to offset higher spending and help keep government debt stable.
“At the same time, the government has a relatively short window of about two years to pursue its reform agenda because of political considerations ahead of general elections scheduled for 2022,” Moody’s said.
The Philippines’s sovereign credit rating is likely to be upgraded “if there were a marked convergence of per capita incomes and revenue generation, and improved debt affordability compared with higher-rated peers.”
“Conversely, the rating would likely be downgraded if macroeconomic stability were to be threatened by unabated overheating pressures leading to a deterioration in fiscal and government debt metrics and an erosion of the country’s external payments position,” Moody’s said.
The reversal of reforms that have supported recent gains in economic and fiscal strength would also likely lead to a downgrade, according to Moody’s.