Debt watcher Moody’s Investors Service has joined other international credit ratings agencies in saying that the political transition in the Philippines is unlikely to have an immediate effect on the country’s Baa2 investment grade rating and stable outlook.
“The political transition is unlikely to have an immediate effect on the credit factors that support the Philippines’ Baa2 ratings and stable outlook,” it said in a report released Thursday, which echoed earlier statements from Standard and Poor’s and Fitch Ratings.
Under the six-year term of outgoing President Benigno Aquino 3rd that started in June 2010, the sovereign credit rating has risen four notches to Baa2 from Ba3, reflecting a pickup in economic growth, greater price stability, fiscal and debt consolidation, and a robust external payments position.
Moody’s believes that presumptive President Rodrigo Duterte will form a cabinet and develop more granular economic and fiscal strategies in a benign economic context.
Nevertheless, it clarified that credit implications of the next administration’s future policies will only become apparent over the coming weeks and months.
“While Mr. Duterte’s comments in the run-up to the election imply a degree of unpredictability regarding domestic security issues, human rights, and foreign policy, our baseline assumption is that there will be broad policy continuity as it relates to fiscal and economic management,” it pointed out.
The credit rater expects that growth will remain relatively robust, and that the central bank will maintain its focus on sustaining macroeconomic and financial stability.
“Unlike many other more commodity dependent emerging markets, the Philippines has not experienced a negative terms of trade shock from the turn in commodity prices since 2014,” it said.
In contrast, lower prices for energy and food imports have stimulated private consumption, which reached a multi-year high in 2015, it noted.
At the same time, Moody’s said rapidly growing services exports and healthy domestic demand have provided resiliency to offset negative spillovers from the slowing of the Chinese economy.
In terms of political stability, the debt watcher said that if Duterte is able to bring about a definitive resolution to the insurgency in the Mindanao region, “it would boost growth and investment in what is one of the poorest—although resource-rich—parts of the country.”
In terms of economic policies, the international credit ratings agency also pointed out that while the new administration’s eight-point agenda lacks detailed plans for achieving these objectives, if applied, they would be broadly supportive of growth.
“This broad agenda has not informed a change in our projection for real GDP [gross domestic product]growth to average around 6 percent in 2016 and 2017, supported in part by the recent acceleration in government spending,” it said.
A material improvement in revenue performance is also not yet evident, and Moody’s expects the Philippines’ fiscal deficit to remain narrow compared with its peers and support continued debt consolidation.
Against this backdrop, price stability and a stable external payments position further anchors its Baa2 rating and stable outlook, it said.
Moody’s observed that based on its limited information about Duterte’s policy priorities so far, the most radical departure from Aquino’s economic policy is his willingness to liberalize foreign investment restrictions via changes to the 1987 Constitution.
Limits in this area have contributed to the Philippines’ low foreign direct investment relative to other countries, it noted, stressing that the liberalization of ownership restrictions could significantly support medium-term economic growth.
Lastly, Moody’s said the government has had relative success in rolling out public-private partnership infrastructure projects without the benefit of proposed changes to the Build-Operate-Transfer Law that could attract more private sector funding.
“Progress on the institutionalization of these changes could support economic growth and therefore be credit positive,” it noted.