Moody’s seeks clarification on PH economy’s overheating risks

the closure of Boracay.

Moody’s was also interested in other policy reforms of the BSP, including its operational changes such as reserve requirement ratio cut and its impaction monetary policy transmission.

The rating agency also asked for updates on the Duterte administration’s ambitious infrastructure program, particularly on the financing envelope from multilateral, bilateral and other non-market sources of funds.

“Is there enough capacity in the local construction industry to implement projects in the pipeline as well as in the private sector?” Moody’s asked.

The representatives also asked the Bureau of the Treasury about its funding program in light of higher interest rate environment and the accounting treatment of future liabilities related to the public-private partnership projects.

For the Department of Finance (DOF), Moody’s asked for updates about the first tax reform law and its contribution to economic growth, improved tax compliance, higher oil prices and increased non-oil imports.

The debt-watcher also sought for the government’s outlook on the second-tax reform package, tax amnesty and bank secrecy law revision.

Moody’s also asked the Department of Budget and Management

Debt-watcher Moody’s Investors Service has sought clarity from the Duterte administration’s economic team whether the Philippine economy is on the brink of overheating, a government document revealed.

Less than two months after the rating agency noted that overheating risks were not yet material, Moody’s representatives, during their visit to Manila last Tuesday, raised concerns over the Philippines’ rapid and sustained credit growth as long with the accelerating inflation.

“We would like to revisit the macro overheating story that we have discussed in previous reviews,” Moody’s said in its letter obtained by Manila Bulletin, noting “rapid credit growth has been sustained and inflation is climbing, while trade/current account deficits continue to deteriorate.”

The rating agency also cited the nation’s declining liquidity conditions, rising domestic interest rates, and the Bangko Sentral ng Pilipinas’ (BSP) reluctance to tighten monetary policy.

“As compared to last year, the market consensus on the inflation outlook has shifted and there is much more concerns about inflation staying above BSP’s target range for longer than the BSP envisions,” Moody’s noted.

“Against the backdrop of anecdotal evidence of opportunistic price increases among retailers, can we really say that inflation expectations are still ‘well-anchored?’,” the rating agency asked the central bank.

In April, Moody’s assessed that the current inflationary pressures were due in part to transitory factors, adding it did not see a significant and prolonged rise in inflation beyond the BSP’s current estimates of 4.3 percent for 2018 and 3.5 percent for 2019.

Other questions raised by the debt-watcher were the BSP and the National Economic and Development Authority’s (NEDA) assessment on higher oil prices, trade war, US’ protectionism position, and (DBM) about the government’s aboveprogrammed spending in the firstquarter whether that was due to “efficiency gains, cost overruns or something else?”

The pension reform and its possible long-term impact on government budget was also discussed by the DBM with the Moody’s representatives.

Moody’s was also concerned on the financial health of governmentowned and controlled corporations, citing “the finance secretary has been quoted in the media pledging to shutter some GOCCs.”

On political risks, Moody’s wanted to know whether the Duterte administration’s permanent ban on overseas Filipino workers in Kuwiat is the beginning of a wide trend.

Moody’s also sought clarification on the proposed federalism as well as its potential economic and fiscal impact, along with President Rodrigo R. Duterte’s controversial programs.

“Discussion on headline risks (persistent noise on political polarization, the drug war, martial law, charter change, etc.) and how they seem to have a negative impact on the Philippines’ scores for rule of law,” Moody’s said.

“Could economic sanctions be imposed on the Philippines due to the administration’s stance on drugs?” the rating agency concluded.