A decade of healthy current account has made the Philippine economy resilient against the impact of external financial shocks, Moody’s Investors Service said on Wednesday.
In a study titled “External Vulnerabilities, Exposures, Mitigants and Credit Supports,” Moody’s said a potential slowdown in portfolio investment inflow or even its reversal does not pose as large a vulnerability for the Philippines as it does for other emerging markets.
“The persistence of the current account surplus since 2003 provides a degree of resilience against external financial shocks, supported by continued growth in overseas Filipino remittances and increasing receipts for service exports,” Moody’s said.
According to the Bangko Sentral ng Pilipinas (BSP), the country’s current account continues to support the balance of payments (BOP), with a current account surplus recorded at $9.4 billion for full-year 2013. Last year’s current account surplus accounted for 3.5 percent of gross domestic product (GDP), leading to a BOP surplus of $5.1 billion.
Moody’s said the country’s banking system is also “virtually immune” to contagion from external shocks.
“It is largely deposit-funded, aided in part by the steady flow of remittances, and exhibits a lack of dependence on external funding and low exposure to the export sector —representing a stable source of financing for government debt and minimal contingent risks to the government’s balance sheet,” it said.
“Underscoring the Philippines’ limited vulnerability, the peso and Philippine government bond yields have remained relatively stable through recent global market volatility,” it added.
Furthermore, Moody’s said the country’s external strengths are reflected in the falling external debt-to-gross GDP ratio and the ample stock of gross international reserves (GIR), which now exceeds the country’s total external debt.
BSP data shows the country’s foreign reserves remain at a “comfortable” level of $78.9 billion as of end-January this year, and can amply cover 11.3 months’ worth of imports of goods and payments of services and income. The GIR is equivalent to 7.9 times the country’s short-term external debt, while the country’s external debt as of end-2013 stood 0.9 percent lower at $58.5 billion.
“Although the Philippine government is among the largest sovereign issuers of US dollar-denominated securities in the Asia-Pacific region, it met nearly all of its gross funding needs through domestic sources in 2013, thereby reducing its foreign currency-denominated debt exposure,” Moody’s said in the study.
That reflects the country’s healthy external payments position and ample liquidity in its banking system, it said.
The ratings agency added that credit support also comes from a track record of narrow fiscal deficits, well-anchored inflation expectations and a declining debt burden that implies considerable policy space to manage the impact of unfavorable external financial or economic shocks.