Moody’s: Ratings unchanged by drug war, nat’l emergency
Moody’s Investor Service believes that the recent security and political developments under the Duterte administration pose limited immediate impact on the investment grade credit ratings of the Philippines.
Moody’s senior credit officer Christian de Guzman said the heightened security measures, resulting from the declaration of state of national emergency due to lawless violence after the bombing in Davao City last Friday evening, would not affect the country’s credit rating in the near future.
“The near-term sovereign credit impact of these developments is limited as we do not expect them to change economic and fiscal policies or outcomes,” he said.
Moody’s Baa2 together with S&P Global Ratings’ BBB rating on the Philippines is one notch above investment grade, while the BBB- rating of Fitch Ratings is equivalent to minimum investment grade.
The country’s gross domestic product (GDP) growth accelerated to seven percent in the second quarter from 6.8 percent in the first quarter amid the strong boost from election related spending.
This brought the GDP expansion to 6.9 percent in the first half of the year from 5.5 percent in the same period last year.
De Guzman said the economic performance of the Philippines in the first semester was stronger than similarly rated peers.
“We do not expect recent events to meaningfully derail this economic momentum,” he added.
While Mindanao has about 24 percent of the total population, the debt watcher pointed out it only accounted for 14.8 percent of GDP and contributed 0.8 percentage point to the GDP growth of 5.9 percent last year.
He pointed out investment decisions would not be materially affected as long as the interventions under the state of lawlessness do not affect businesses nationwide.
However, De Guzman said President Duterte’s increasingly controversial law and order policies could exact an opportunity cost for reform.
More recently, the administration has deployed considerable political capital in defense of his campaign on drugs and has engaged key legislators in highly publicized disputes.
“We have assessed the Philippines’ susceptibility to political risks as low. We do not believe that a significant intensification of the security response – such as an imposition of martial law, which requires congressional approval – is likely, given the current system of checks and balances,” he added.
President Duterte’s tirade against US President Barack Obama also led to the cancellation of the bilateral talks between the Philippines and the US at the Association of Southeast Asian Nations summit in Laos.
He warned the government of the implementation of key economic reforms including the rationalization of fiscal incentives, amendments to the Bangko Sentral ng Pilipinas charter and changes to foreign ownership restrictions could be affected amid the controversial campaign against drug pushers and users.