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Moody's Affirms Philippines' Baa2 Rating, Stable Growth Outlook

by: Mary Christine Galang

Thursday, July 20, 2017 |

Moody's Investors Service affirms the Philippines' Baa2 long-term issuer and senior unsecured debt rating and maintains a strong and stable growth outlook.

It cites the country's economic performance and continuous debt consolidation as positive factors that will further converge key fiscal metrics versus corresponding peer medians.

On the other hand, developments in domestic politics pose challenges to the institutional strength and the economy's positive trend in performance. There are also constraints seen in material capacity despite a stable macroeconomics.

Strong growth outlook

Between 2014 and 2016, the Philippines had an average of 6.4% real GDP growth, which is more than twice the corresponding median for Baa2-rated countries. Over the next two years, Moody’s expect an above 6% growth per year, which will largely come from the private sector.

A young population will be key in private consumption growth stability. Overseas Filipino workers (OFWs) will maintain stable remittances to support household consumption. The business process outsourcing (BPO) sector, which comprises the bulk of services exports, will continue to improve the external environment.

Improved government spending, particularly in infrastructure development, is seen to achieve the target range of 7%-8%.

The Baa2 rating reflects the country's high economic strength, which balances its large scale and rapid growth against low per capita income compared to its peers.

Moody's assessment reveals that the Philippines' institutional strength is drawn from a long track record of sustaining macroeconomic and financial stability, despite weaker Worldwide Governance indicators as compared to other investment grade countries.

In addition, the government's fiscal strength also reflects low government debt relative to most Baa2-rated peers, as well as low debt affordability and elevated vulnerability to exchange rate depreciation. These indicators have shown significant improvement in the last 10 years. Furthermore, the country's susceptibility to even risks is reduced by a healthy banking system and its external payments position.

 

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