MANILA – Credit-watcher Moody’s Investor Services recently affirmed the Philippines’ investment credit rating and maintained a stable outlook, but flagged the shift to federalism as a potential downside risk to the country’s fiscal health.
In its credit report, Moody’s has affirmed the Philippines’ long-term local currency and foreign currency issuer and senior unsecured debt ratings at “Baa2” and maintained the outlook at stable.
Obligations rated “Baa2” are subject to moderate credit risk and are considered medium grade and as such may possess certain speculative characteristics.
“Moody’s expects that growth will remain robust and that the Philippines’ fiscal metrics will strengthen somewhat as the government continues to make progress on its socioeconomic reform agenda, but these trends are likely to fall short of bringing the Philippines’ credit profile in line with higher-rated countries,” the debt-watcher said.
Moody’s, however, took note that policymakers face challenges in managing the current inflationary pressures.
It also added that “domestic political developments and prospective changes to governance frameworks, including a shift to a federal form of government, present downside risks to the country’s institutional and fiscal profile.”
Moody’s said President Rodrigo Duterte’s “contentious policies on law and order over the past two years as well as other political controversies may have a negative impact on the Philippines’ attractiveness to financial and physical asset investors.”
The debt-watcher said prospective changes to governance frameworks could have negative implications for public finances.
“These include the recent Supreme Court ruling that redefines the share of national government revenue to be transferred to local levels of government, as well as the proposed shift to a federal form of government from the current centralized form of government.”
“In each of these cases, the fiscal impact will in part be determined by the degree to which spending commitments will be devolved to the local levels of government.”
The shift to federalism would also likely incur an expansion in the aggregate size of the government and, hence, public expenditure, according to Moody’s.
“At the same time, there may be a gap between the national and local levels of government with respect to their ability to manage fiscal resources, posing a risk to the improved fiscal discipline that has characterized national government finances over the past decade.”
The debt-watcher, meanwhile, cited the government’s progress on several facets of the socioeconomic reform agenda that was unveiled at the outset of the term of President Duterte such as the tax reform which complemented faster implementation of infrastructure development. (GMA News)
