But economic outlook stays positive
Fitch Group’s BMI Research downgraded the Philippines’ short-term political risk index score to 63.1 from 63.5 previously amid the ongoing government war against terror in Marawi City.
The think tank, however, did not make any change to its positive economic outlook for the Philippines despite the drop in the country’s political risk index score.
President Rodrigo Duterte declared martial law over the entire Mindanao island on May 23 after fierce fighting erupted between the Maute terror group and government security forces in Marawi. The Maute group has been seeking ISIS recognition for its operations in the southern Philippines. The Armed Forces of the Philippines and the Philippine National Police have since reinforced their troops in the city.
“The latest military deployment has resulted in over 46 casualties on both sides and marks an escalation of the security situation in southern Philippines. Accordingly, we have downgraded the Philippines’ short-term political risk index score to 63.1 out of 100, from 63.5 previously,” BMI said in its latest analysis released on Friday.
The think tank said it does not see martial law as a prelude to the return of dictatorship in the country, and neither does it expect it to have any significant impact on domestic economic growth.
Peso rebound from initial reaction
BMI pointed out that the peso has recovered from the initial market reaction to the declaration of martial law earlier this week that drove it to touch support at P50:$1 on Wednesday.
By Friday, the local currency has regained some strength, closing at P49.75 on the Philippine Dealing System from P49.77 on Thursday.
“We maintain a relatively constructive view on the Philippine peso relative to EX FX, forecasting the unit to end the year at P50/USD,” the Fitch Group unit said.
BMI has been upbeat in its recent assessments of the Philippines, seeing the banking sector and the construction sector contributing positively to the economy.
Just a couple of days before Duterte placed Mindanao under martial rule, BMI said it maintained a constructive view of the Philippines’ medium-term economic outlook as it expected a more multilateral foreign policy stance, government’s infrastructure overhaul and an improved business environment that would drive growth forward.
The country’s gross domestic product (GDP) remains among the top performers in Asia, growing 6.4 percent in the first quarter of 2017 after hitting 6.6 percent a year earlier.
“Despite the growth moderation, we maintain a constructive view of the country’s medium-term economic outlook,” BMI Research said in an earlier research, released on May 22.
Growth is also expected to be inclusive, reducing the overall poverty rate from 21.6 percent to 14 percent, and poverty incidence in rural areas from 30 percent in 2015 to 20 percent in 2022.
BMI has also underscored the strength of the country’s banking system as supported by a strong economy and ongoing structural reforms, prompting the Fitch Group unit earlier to keep a positive growth outlook on the industry in light of healthy capitalization and liquidity profiles.
Given the Duterte government’s massive infrastructure building program for the duration of his six-year term, BMI had forecast that the construction sector may grow by double-digit rates in the years between 2017 and 2021.
The Department of Finance (DoF) has said the government will ensure the country’s infrastructure buildup through tax reform and by tapping the excess liquidity in the domestic market.