Growth track deemed intact despite politics
THE PHILIPPINE ECONOMY is expected to see above-six percent expansion in the next two years on the back of increased public spending and an improving investment climate, according to a Moody’s Investors Service report that said political issues pose minimal risk to the country’s growth story.
Despite persistent political noise, Moody’s still expects Philippine gross domestic product (GDP) to expand by 6.5% this year, which if realized will be slower than 2016’s 6.8% pace but will hit the low end of the government’s 6.5-7.5% growth goal.
“Looking ahead, we expect the Philippine economy to sustain its growth trajectory, driven by the continued strength of domestic demand, including further progress on increased government absorption and attracting FDI (foreign direct investments),” the global debt watcher said in its March 22 regular credit update.
Moody’s gave a “high” score for the country’s economic strength, citing strong GDP growth over the past few years and an upbeat outlook anchored on private and public investments.
BANKING ON CONTINUITY
“Strong domestic demand has buffered external shocks, such as slowing global trade and the turn in global commodity prices that have adversely affected other emerging markets,” the report read.
“The administration of President Rodrigo Duterte, which commenced at the end of June 2016, has signaled broad macroeconomic policy continuity from the previous administration,” it added, noting that his 10-point socioeconomic agenda includes a much-needed thrust to raise revenues that will help fund increased government spending on infrastructure and social services.
Strong remittance inflows also help prop up the local economy as it fuels stronger consumption, Moody’s added, while strong supervision of the banking system by the Bangko Sentral ng Pilipinas also helps maintain financial stability.
Credit analysts also said that the latest Investment Priorities Plan for 2017-2019 puts the country on track in its infrastructure push, but noted that its effectiveness will depend on the state’s capacity to speed up disbursements in order to help achieve economic growth the government has targeted at 7-8% from next year to 2022.
The credit rater sees growth bouncing back to 6.8% next year.
This, Moody’s said, comes on the back of a sustained annual decline in the government’s debt stock and hefty international reserves that reflect “moderate” fiscal strength.
The Philippines has held a “Baa2” rating with a “stable” outlook from Moody’s since December 2014.
Despite mounting political risks under the Duterte administration, Moody’s still said that there is a “low” chance for the economy to stagnate due to sudden developments in the local scene.
At the same time, the debt watcher warned that political controversies could hold back progress of reforms that need legislation.
“While we expect economic and fiscal governance to be insulated from the president’s controversial focus on law and order, a prolonged focus on political matters could detract attention away from the reform agenda,” Moody’s said.
“In the absence of a wellformulated articulation of the Duterte government’s pursuit of a more independent foreign policy, political risks have become less predictable, although still low,” it added.
The credit rater was referring to the government’s deadly war on drugs that has claimed over a thousand lives as a result of police operations and suspected vigilante action, as well as Mr. Duterte’s decision to steer the country away from the United States towards Asian neighbors.
Moreover, the House of Representatives has prioritized approval of a bill restoring death penalty, leaving other bills like the first of four tax reform packages for action at a later date.
An impeachment complaint against Mr. Duterte was also lodged at the House on March 16, which could take up the chamber’s time for priority reforms even though House leaders have said the bid to unseat the president is unlikely to prosper.
Moody’s has repeatedly stressed the importance of the tax reform program, saying it would help raise funds for infrastructure needed to support economic expansion.