Bigger budget deficit not expected to hurt Philippines’ credit profile
THE PHILIPPINES still has room for a more aggressive fiscal response to blunt the impact of the coronavirus disease 2019 (COVID-19) pandemic, according to credit raters who said that the expected widening of the budget deficit will not affect the country’s credit standing as long as the debt rise is temporary.
Moody’s Investors Service and Fitch Ratings have “Baa2” and “BBB” debt ratings for the Philippines — both a notch above minimum investment grade — while S&P Global Ratings upgraded the country’s rating in May last year to “BBB+”, a step short of single “A” grade.
The International Monetary Fund (IMF) said separately that the country has enough buffers to cushion the pandemic’s economic impact.
“Fiscal accommodation will be a key part of a multi-faceted policy response to mitigating the economic and public health fallout from the coronavirus outbreak,” Christian de Guzman, senior vice-president at the Sovereign Risk Group of Moody’s Investors Service, said in an emailed response on Tuesday to BusinessWorld’s questions.
A recent report by the National Economic and Development
Authority (NEDA) said the government’s budget deficit could balloon to as much as 4.4-5.4% of gross domestic product (GDP) this year, as “aggressive efforts to contain COVID-19, including the Luzon-wide quarantine, could by itself add pressure on the country’s fiscal position.”
President Rodrigo R. Duterte has signed into law a measure that gives him extra powers to combat the pandemic, including the ability to realign savings from the 2020 budget of agencies under the Executive branch. Around P200 billion will go to a emergency subsidy program for 18 million low-income households for two months.
Finance Secretary Carlos G. Dominguez III on Wednesday said the government is looking to borrow up to $2 billion from multilateral lenders to support increased government spending.
Mr. De Guzman noted that budget deficits are not the only indicator to gauge a country’s institutional strength.
“For example, despite the widening of the budget deficit in 2019, the government was able to record an improvement in other key metrics, such as debt as a share of GDP (public indebtedness) or interest payments as a share of government revenue (debt affordability),” he said.