Moody’s: Poor budget execution, infra woes put 2015 7-8% GDP govt target at risk

Poor budget execution and infrastructure constraints remain the major domestic risks for the Philippine economy to achieve the government target of 7 to 8 percent in 2015, global debt watcher Moody's Investors Service said.

 

In its latest credit analysis report, Moody's gave the Philippines a "stable outlook" in the next one to two years given the positive economic and fiscal trends.

 

"The country’s debt burden has converged with the median for Baa2-rated peers, and we expect its growth outlook, external balances, and fiscal performance to show resilience to lower commodity prices," it said.

 

The debt watcher also noted the maintained rapid pace of growth of the private sector.

 

"In particular, the resilience of private investment portends the sustainability of higher growth relative to peers over the next two years," it added.

 

The Philippines outlook compares with peer countries with the same credit rating emerging markets namely Chile (Aa3 stable), Peru (A3 stable), Panama (Baa2 stable), South Africa (Baa2 negative), and Vietnam (B1 stable), and developed markets such as Ireland (Baa1 stable) and Spain (Baa2 positive).

 

Earlier this month, the debt watcher raised the country's credit-rating a notch above investment grade to Baa2 from Baa3.

 

The country's declining debt burden and favorable growth prospects amid rising investments and resilience to external risks were cited in the upgrade.

 

But despite the positive outlook, Moody's said the government's gross domestic product (GDP) target for next year may be difficult to achieve in the absence of effective budget execution and existing infrastructure constraints.

 

"The government’s real GDP growth target of 7 percent to -8 percent for 2015 will be difficult to achieve in the absence of a meaningful improvement in budget execution, which in turn could have growth repercussions over the longer-term," it said.

 

"Any benefits from infrastructure development will be reaped only in the medium- to long-term," it added.

 

In the third quarter, government underspending was one of the reasons the Philippine output slowed to 5.3 percent.

 

The latest numbers brought the year-to-date growth to 5.8 percent, way below the 6.5 to 7.5 percent government target this year.

 

Meanwhile, Moody's said the main external risks to growth are:

 

The debt watcher said Japan is the Philippines’ largest trade partner but recent data shows that the current recession in Japan has had only a limited effect on the Philippines’ overall growth conditions and export performance.

 

While the lower oil prices would positive push the Filipinos' purchasing power, it may slowdown the growth conditions in the Middle East, which could lead to slower growth of remittance inflows from the region, Moody's said.

 

The Middle East is the second-largest source of remittances to the Philippines at 18.9 percent of total remittances in 2013, second to US with 43.1 percent.

 

Lower global demand and the abundance of US shale oil have dragged down prices of the the commodity also called black gold to five-year lows. — Danessa O. Rivera/RSJ, GMA News