PH GETS MIXED CREDIT RATINGS

OUTLOOKS on the country’s creditworthiness differ after the economy officially entered recession in the second quarter.

In a comment released late last week, ING Bank Manila senior economist Nicholas Antonio Mapa emphasized that credit rating agencies such as Moody’s Investors Service, Fitch Ratings and S&P Global Ratings have upgraded the Philippines to investment grade rating on the back of its solid economic growth, driven by strong consumption.

“But what happens when solid, above-average growth no longer is achievable? With no consumption, government revenue streams dry up with the recent pandemic showcasing that point clearly,” he said.

Mapa added that consumption, which accounted for 70 percent county’s gross domestic product (GDP), shrank by more than 15 percent in the second quarter of the year, contributing to the record 16.5-percent economic contraction during the same period.

He also highlighted that the strained revenue streams will eventually put pressure on the fiscal position and eat away at the buffers erected over the years of fiscal discipline.

Considering these underlying factors, the ING economist, said: “With the Philippines likely entering a dirty L-shaped recovery and into a lower GDP path, we won’t be surprised if we see a negative outlook from one of the big three in the coming months.”

Meanwhile, analysts from Rizal Commercial Banking Corp. (RCBC) and Union Bank of the Philippines gave The Manila

Times a different view, noting that the Philippines’ debt metric remains solid.

“Philippine economic and credit fundamentals remain relatively strong amid relatively low debtto-GDP ratio, strong external position, benign inflation and favorable demographics,” RCBC chief economist Michael Ricafort said.

Still manageable

He added that Philippine debt-toGDP ratio remains relatively lower at around 40 percent, better than similarly-rated countries and lower than the 60-percent ceiling set by some developed countries such as those in the Euro zone.

Ricafort also pointed out that these are signs of resilience of the Philippines in terms of improved economic and credit fundamentals, as well as attesting to the country’s improved fiscal performance and overall debt management.

He added that various monetary easing measures in recent months in response to the coronavirus disease 2019 pandemic-related lockdowns have led to record low local interest rates, thereby effectively reducing the interest expenses of the government, businesses, consumers/households and other borrowers.

“As a result, lower financing costs/borrowing costs, as also partly brought about by the country’s improved credit ratings, also help in keeping debt levels relatively lower and more sustainable to manage over the long-term,” the RCBC economist said.

For his part, Security Bank Assistant Vice President and economist Robert Dan Roces told TheTimes that he agrees with Bangko Sentral ng Pilipinas Governor Benjamin Diokno’s latest statement that a credit rating downgrade for the country is “highly unlikely.”

He explained while the Philippines

saw a steep drop in the second quarter, it is not unique in that situation as most of its regional peers also experienced the same contraction.

“However, our advantage was that we entered this pandemic with strong fundamentals, and having exercised fiscal prudence as we went into recession, we see that relative advantage coming into play: manageable debt- to- GDP ratio, high reserves to temper currency volatility, and benign inflation levels,” Roces said.

On the other hand, UnionBank chief economist Ruben Carlo Asuncion stressed that it is difficult to determine whether the Philippines will be downgraded or even upgraded.

“It actually depends on the current government how will they respond further to the crisis and the challenges it poses,” he said.

Asuncion acknowledged that there are many things that needs to be done and improved, especially the response to the current Covid-19 spread resulting to another tightening on the movement of people.

Late last week, Fitch Ratings reiterated that it anticipated some deterioration in the Philippines’ credit metrics as a result of the pandemic in its last rating review.

In May, the credit rater revised its outlook for the country’s “BBB” rating to stable from positive.

“We noted at that time that the economic projections were uncertain and subject to considerable downside risks depending on how the virus runs its course globally and domestically, and the possibility of a further extension or reimposition of lockdown measures,” it said.

“Given the Philippines’ difficulty in containing the virus, these downside risks are materializing and our current growth forecast of -4 percent for 2020 now seems optimistic and is likely to be revised down,” Fitch added.