Moody’s Investors Service has trimmed down its growth forecast for the Philippine economy this year to 6 percent from a previous projection of 6.5 percent, citing bottlenecks in the government’s budget execution.
The revised forecast is lower than the 6.1 percent expansion achieved last year and below the 7 percent to 8 percent gross domestic product (GDP) growth assumption by the government.
In its credit opinion on the country released on Friday, Moody’s said the government’s “ambitious” growth target may be difficult to achieve due to such spending bottlenecks.
“Given the continued strength in revenue collection, the government may find it difficult to reach its full-year target deficit of 2 percent of GDP–and its real GDP growth target of 7 percent to 8 percent–without significantly improving expenditure performance,” it said.
Moody’s took note of revenue growth in the first four months remaining robust at 9.1 percent year-on-year, led by the Bureau of Internal Revenue’s tax collections, and of expenditure, excluding interest payments, rising 6.8 percent year-on-year, slightly higher than the 6 percent increase recorded for full-year 2014.
However, explaining how the government’s expenditure performance can be a drag on growth, the ratings agency pointed out that the decline in infrastructure and capital outlays spending pushed down GDP growth in the first quarter to 5.2 percent, the slowest pace since the fourth quarter of 2011. The figure also fell short of analyst forecasts.
“While details for April are not yet available as of publication, infrastructure and other capital outlays declined 11 percent in the first quarter, contributing to the drag posed by public investment on overall GDP growth in the first three months of the year,” it said.
Earlier, Singapore-based DBS Bank and SB Equities Inc., the equities brokerage arm of Security Bank Corp., made downward adjustments to their Philippine GDP projections for the year.
DBS cut its growth forecast to 6 percent from a previous projection of 6.3 percent, while SB Equities reduced its GDP expectations to 6.4 percent from 6.7 percent.
The International Monetary Fund (IMF) also said it is set to review its 6.7 percent Philippine growth outlook for the full year to consider the impact of the economy’s weaker-than-expected performance in the first quarter.
Still stronger than most peers
Nevertheless, Moodys still believes that the Philippines still possessed economic strength and can sustain higher GDP growth than most of its peers on the back of resilient private investment in the country.
The ongoing recovery in the United States, the largest source of Filipino remittances, is also supportive of household consumption in the Philippines, it added.
The ratings agency also stressed that lower global commodity prices are likely to boost growth through disinflation, in contrast to weaker growth prospects for a number of the Philippines’ more commodity-dependent rating peers.
“The Philippines has demonstrated resilience to global shocks, which limits the possibility that improvements in fiscal or economic performance would be significantly undermined,” it added.
As a net oil importer, the Philippines is seen standing to benefit from lower oil prices via lower inflation and a compression of the import bill.
In addition, as manufacturing goods, services, and remittances comprise the vast majority of current account receipts, the country’s external balances will not be as adversely affected by the terms of trade shock affecting more commodity-reliant exporters, Moody’s said.
“The Philippines is also less reliant on a slowing China, while its solid current account surplus provides a degree of resilience to shifts in global liquidity conditions in the context of the imminent normalization of US monetary policy,” it said.
Lastly, the ratings agency said the central bank has continued to bolster its strong track record of maintaining price and financial stability, contributing to favorable operating conditions for the country’s banking system, currently the only system deemed by Moody’s to have a positive outlook.