By CHINO S. LEYCO
One of the three major international credit rating agencies expects a significantly economic slowdown in the Philippines this year as the nation’s recent gains are now being challenged by the rapid and widening spread of the coronavirus pandemic.
In a credit opinion, Moody’s Investors Service said the Philippines’ gross domestic product (GDP) may expand by only 2.5 percent this year, significantly slower compared with the already revised 5.4 percent forecast released in March.
Moody’s said that its much slower forecast is owing to curtailed domestic demand following the imposition of the Luzon-wide enhanced community quarantine (ECQ), which the Duterte administration extended for another two-weeks or up to April 30.
“The outlook for Philippine growth will be negatively impacted through trade, supply chain linkages, investment, and tourism… while the global downturn weighs on the outlook for remittance inflows and goods exports,” Moody’s said.
“In addition, stringent containment measures will also sharply curtail domestic activity, including consumption and the implementation of the government’s spending programs,” the credit rater added.
But despite the lower forecast, Moody’s said the country’s GDP growth will remain robust relative to peers this year.
The rating agency also cited the country still has favorable demographics, moderate government debt levels, improving debt affordability as well as stable and resilient banking system.
Before the COVID-19 crisis, the Duterte administration planned to raise the government’s infrastructure spending to over seven of GDP by 2022, up from around 6.2 percent in 2018, in line its goal of around seven percent to eight percent annual economic expansion pace.
The national government’s fiscal metrics also strengthened in recent years following the Duterte administration’s socioeconomic reform agenda, particularly on tax reform.
But Moody’s now warned “the global coronavirus outbreak will challenge these positive trends,” citing the health crisis will not only dampen growth, but also result in lower government revenue take and higher borrowings to fund spending.
“Lower growth and substantial fiscal stimulus will contribute to a higher general government debt burden that we project to rise to around 44 percent of GDP in the next few years [from the current 41 percent],” Moody’s said.
It added the Philippines also has low per capita incomes and weaker government revenue mobilization compared to other investment-grade nations.
The weak rule of law and control of corruption are also weighing on institutional capacity.
“Following the mid-term elections held in mid-2019, the government has a comparatively short window of about two years to pursue its legislative agenda, as we expect campaigning to detract attention away from reform ahead of the next general election,” Moody’s said.