Moody’s: Tax reform, infra plans credit positive for Phl

The Duterte administration's tax reform program and infrastructure development plans, if implemented successfully, could boost the country's credit rating, according to credit watchdog Moody's Investors Service, GMA News reported.

"In particular, an acceleration of infrastructure development and the passage of comprehensive tax reform would be credit positive," Moody's said in its annual credit analysis released on Tuesday.

Its assessment of the Philippine rating incorporates the assumption that economic and fiscal governance will be anchored by the administration's 10point socioeconomic development agenda.

"Progress on this agenda could ultimately depend on the whether the president deploys his considerable political capital towards associated reforms," Moody's noted.

“The effectiveness of infrastructure development will be a major driver of long-term economic diversification and ultimately growth,” it added.

"The tax reform of the administration, which seeks to reduce personal and corporate income taxes and expand the value added tax base, could further boost the country's growth prospects by supporting consumer and business spending while ensuring sound fiscal health," Guian Angelo Dumalagan, market economist at the Land Bank of the Philippines, said on Wednesday.

Increased spending on economic and social infrastructure could also fuel the country's expansion by promoting efficiency and productivity, Dumalagan noted.

A sustained focus on political issues could detract attention away from reforms and policies that deviate from the administration's stated priorities could adversely impact the assessment of the country's institutional strength, Moody's noted.

The debt watcher assigned a rating of Baa2 for the Philippines, a notch above the minimum investment grade, and carries a “stable” outlook, indicating it is unlikely to change over the short-term.

A rating within the investmentgrade scale indicates a government’s ability and willingness to pay debts as they fall due, given the generally healthy economic and political conditions of a country.

It gives a country a favorable image before foreign and local investors, among other stakeholders, helping boost investments.

"These developments could help secure the Philippines' strong economic trajectory, leading to potential credit upgrades in the future," Dumalagan said.

Finance Secretary Carlos Dominguez III, said in a separate statement on Tuesday the positive mention of the tax reform and infrastructure plans of the administration proves that "by looking beyond headline noise, one would see sound macroeconomic fundamentals and a robust, credible, and sensible overall socioeconomic development agenda for the Philippines."

Moody's noted it has taken into account four major areas of assessment namely: economic strength, institutional strength, fiscal strength, and susceptibility to event risk.

Citing robust economic growth, favorable demographics, and rising investments, it rated the country's economic strength as high.

Institutional strength — the ability of government institutions to implement sound policies — and fiscal strength — the overall health of government’s finances — are both rated moderate.

The Philippines' susceptibility to event risks, which describes a country’s vulnerability to various risks that could potentially force government to default on its debts, is favorably described as low.

"The Philippines’ vulnerability to external shocks is also low given the country’s current account surplus, which is supported by sustained foreign exchange inflows in the form of remittances and business process outsourcing revenues," Moody's said.