The US-based good-governance watchdog and rating group, Moody’s, has warned that “domestic political risk, though low” has become “more unpredictable and could disrupt the progress trajectory we are now experiencing in the long term.
It also said the reform program now in operation under the Duterte administration is likely to boost our “medium term economic growth.”
Moody’s analysis, found in the report titled “Sovereigns—Asia Pacific: 2017 Outlook—Stable Outlook Balances External, Political Risks Against Economic, Institutional Reforms” was released on Tuesday.
It says the outlook for creditworthiness of sovereigns in Asia Pacific, including the Philippines, is stable overall, reflecting a mix of credit-supportive and credit-challenging factors. Moody’s expects rising income levels and strengthening institutions to offer support to several countries’ credit profiles in the region.
Moody’s expects that the expansion of gross domestic product (GDP) in the region will remain relatively robust.
But global trade will be in the doldrums. And “capital outflows may weigh on the credit profiles of sovereigns more dependent on external demand or financing.”
With these parameters, Moody’s says credit outcomes in 2017 will be determined by the effectiveness of the countries’ reform efforts and how political risks evolve in each of them.
Moody’s points out that authorities are formulating policies that range from those that address acute near-term challenges to those that set the stage for longer-term improvements in their countries’ credit profiles.
But capacities to implement these policies differ across countries and this is shown in the varying scores for “Institutional Strength” that Moody’s gives to each country.
“The capacity of governments to implement measures and the effectiveness of policies in achieving the respective governments’ objectives will shape the sovereigns’ credit profiles over the coming year,” Moody’s says.
The Philippines gets some praise, together with India and Indonesia, for reforms we have made which, Moody says, are likely to support our economic growth for the medium term.
It also says that like India, the Philippines has emphasized improvements in its business operating environment and greater infrastructure investment.
“The thrust of fiscal policy has been to increase revenue and provide space to ramp up spending on projects, including transportation and electricity generation. In both cases, poor infrastructure has been a significant constraint on the economy,” Moody’s says.
The government had planned to increase the country’s national and local infrastructure budget from P861 billion in 2017 to P1.898 trillion by 2022, or from 5.4 percent to about 7 percent of GDP.
Moody’s had earlier said Philippine gross domestic product (GDP) could rise 6.5 percent this year, as key domestic drivers of growth were expected to remain solid.
It, however, expressed concern over political risks that have now become less predictable—more unpredictable—than before.
It explained that political developments could interfere with the ability of governments to implement reforms and would exacerbate the negative growth impact of slower global trade and capital flow reversals.
Moody’s recalled that since President Rodrigo Duterte came to power in June 2016, legislators [and some sectors of the media]have been critical of the extrajudicial killings of some 5000 alleged drug pushers and addicts as a result of the war on drugs he ordered the national police to carry out. While international criticism of the war on drugs has been loud, Filipinos have however continued to give him record favorable ratings.
Moody’s also mentioned the protests made by followers of the so-called Yellow Cult of Cory and Ninoy Aquino diehards over Mr. Duterte’s allowing a hero’s burial for the late president Ferdinand Marcos. His remains had been ridiculously left unburied by his family out of respect for a segment, perhaps large, of the public that had been demanding that their beloved FM be treated as a hero and be buried in the Libingan ng Mga Bayani (the Heroes’ Cemetery).
Moody’s counsels Filipinos not to give too much attention and “prolonged focus” on political matters, which the Yellow Cult desires because this “could detract attention from economic and fiscal reforms.”
We wholeheartedly agree.