Asian laggards to see mounting debt pressure on delayed revenue rebound

ASIA-PACIFIC economies such as the Philippines that are still struggling with virus containment will likely be compelled to take on more debt due to the delayed rebound of government revenue, S&P Global Ratings said.

“In countries with lagging economic activity, we see a threat of delayed revenue rebounds and higher debt accumulation. Recurring infections and lockdowns could further impede people mobility and dampen demand,” the company said in a note, One Region, Two Recoveries, issued Tuesday.

“The reintroduction of lockdowns and tighter mobility restrictions will dent the trajectory of economic recovery, particularly for consumption and tourism-dependent economies,” it added, noting the Philippines, India, Malaysia, Thailand, and Indonesia still struggle to contain the virus.

In a separate note, S&P said retail and food sectors in the Philippines will be most affected by recurring lockdowns.

“Discretionary sales and food service in countries such as India and the Philippines will feel more pain than in 2020 as the government enforces strict lockdowns given their more fragile conditions after previous waves,” it explained.

Metro Manila and nearby provinces were placed back under the strictest lockdown setting in late March as infections surged, straining the capacity of healthcare facilities. Restrictions were gradually eased by April as new case counts declined in high-risk areas.

Infections rose by 4,479 Tuesday to bring the tally to 1.408 million, according to the Department of Health. Active cases stood at 50,037.

S&P warned that new restrictions and slow vaccination rollouts pose a high risk to credit conditions in the near term within the Asia Pacific.

“While the recent pickup in vaccination rates across some geographies looks promising, the race to inoculate Asia-Pacific’s 4.7 billion remains challenging given ongoing vaccine shortages and uncertain vaccine efficacy against new virus strains,” S&P said.

Last week, S&P cut its growth forecast for the Philippines to 6% from 7.9% previously, saying low public mobility during the pandemic remains a drag on recovery. The latest estimate matches the lower end of the government’s 6-7% target growth for 2021.

Public mobility dampens consumption in the Philippines, where such spending accounts for 70% of the economy.

The economy contracted by a record 9.6% in 2020, the worst in Southeast Asia. It was in the negative for a fifth straight quarter in the three months to March, when gross domestic product declined by 4.2%.