S&P flags brief impact of security fears

INVESTMENTS to the Philippines could slow in the short term amid security concerns, although such risks are unlikely to affect the country’s credit rating as economic growth is expected to stay robust, analysts at S&P Global Ratings said.

The global credit rater still expects the Philippine economy to expand at the 6% level this year, despite security threats that could briefly turn off investors.

“On a cyclical basis, these security concerns could affect some of the investor confidence onshore and partly offshore as well, so temporarily, that might deter or moderate some of the investment growth. But overall, we still see the Philippines easily reaching 6- 6.5% now and even over the medium term,” S& P economist Vincent R. Conti said in a webcast yesterday.

The raging battle in Marawi City between government forces and extremists forced President Rodrigo R. Duterte to place the entire Mindanao island under martial law on May 23. The battle there, now on its fourth week, has so far claimed the lives of 65 soldiers and policemen and 26 civilians and has displaced thousands of residents from the capital city of Lanao del Sur.

Just last Sunday, members of the communist New People’s Army raided a police station in

Maasin, Iloilo, taking with them guns and ammunition even after the communist leadership recently called for a truce.

In a separate report published yesterday, the debt watcher described these events as “largely self-contained.”

Foreign portfolio investments posted a $543.79-million net outflow in the five months to May, with investors citing global terrorist attacks and interest rate hikes by the United States Federal Reserve among their biggest concerns.

Back home, robust consumption driven by a young population will likely sustain robust expansion for the country’s gross domestic product (GDP), Mr. Conti said. S&P still expects Philippine GDP to grow by 6.6% this year and 6.4% in 2018, slower than 2016’s 6.9% climb but will keep the country in the ranks of the world’s fastest-growing economies.

“The question is [ whether] the recent attacks [ in Marawi] might be weighing on economic growth… The economic backdrop is still quite supportive of the rating,” added Craig Michaels, S&P’s director for sovereign ratings.

Mr. Michaels said security risks are unlikely to threaten the Philippines’ investment grade status, noting that the trajectory of policy reforms remains the biggest concern for the debt watcher.

The Philippines currently holds a “BBB” rating — a notch above minimum investment grade — with a “stable” outlook which S&P affirmed in April.

“The bigger risk we see is if they ( government) were to unwind gains substantially. That is more likely to put downward pressure on the rating. We don’t think that’s a high probability at the moment,” Mr. Michaels said, adding that S& P expects state policies to remain “broadly consistent” under the watch of Mr. Duterte’s economic managers.

S&P also expects fiscal spending to remain prudent through the state infrastructure push and debt to stay manageable.