The country’s top economic officials on Friday said that while the Philippines, like many other economies around the world, is confronted with challenges brought by the COVID-19 crisis, it is in a strong position and has built buffers to withstand the impact of the pandemic.
The chiefs of the Bangko Sentral ng Pilipinas (BSP), Department of Finance (DOF), and National Economic and Development Authority (NEDA) made the statement in response to Fitch Ratings' revision of its outlook on the Philippines back to “stable” from “positive.”
"The revision of the Outlook reflects deterioration in the Philippines' near-term macroeconomic and fiscal outlook as a result of the impact of the global COVID-19 pandemic and domestic lockdown to contain the spread of the virus," Fitch Ratings said.
"The 2020 forecast is 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 re-imposition of lockdown measures," it added.
BSP Governor Benjamin Diokno said structural reforms and sound economic management over the years have provided the Philippines with monetary and fiscal space to safeguard lives and support livelihoods for the ongoing health crisis.
"The BSP's long list of prompt and decisive policy support measures—including the cumulative 125 basis points (bps) cut in the policy rate and the 200 bps reduction in the reserve requirement ratio so far this year, shows that we have been putting our elbow room to good use," Diokno said.
The central bank chief assured the public that the BSP stands ready to use its full range of policy tools to help address the impact of the pandemic on the domestic economy.
For his part, Finance Secretary Carlos Dominguez noted that the Philippines is in a good fiscal position to deal with "the unprecedented challenges posed by this contagion that has brought the global economy to the cusp of a recession."
"The government is capable of meeting the huge financial requirements of its COVID-19 response because of the prudent macroeconomic and fiscal management policies set in place by President Duterte since he assumed office in 2016,” Dominguez said.
"These policies plus comprehensive tax reforms have resulted in a well-balanced debt management strategy and improved revenue streams that now allow the Duterte administration to fund massive healthcare and livelihood support to save Filipino lives and protect our communities without fear of a debt blowout."
The Finance chief said the economic managers are working with Congress, the business community, and the rest of the private sector to build on the initial success of the government's policies by pursuing initiatives such as further investment liberalization and the remaining tax reform packages to lead the country to the path of a quick post-pandemic recovery and sustained high and inclusive growth.
Acting NEDA Secretary Karl Kendrick Chua said that the buffers that the Philippine economy had at the start of the COVID-19 crisis play an important role in ongoing efforts to address the pandemic and its effects on lives and incomes.
"Meantime, while the government is implementing a wide range of relief and mitigating measures, it is prudent to also now come up with a plan on how to restart our economy over the near term. The objective is to help Filipinos, businesses, and the overall economy bounce back once the pandemic subsides," Chua said.
NEDA heads the Inter-agency Task Force Technical Working Group for Anticipatory and Forward Planning (IATF-TWG-AFP) that is drafting a COVID-19 recovery plan for the Philippines.
Details of the plan are being vetted and will be announced soon.
The recovery plan will identify measures that will help revitalize industries, create jobs, and sustain economic growth.
The recovery plan is the fourth pillar of the Philippines' socio-economic strategy against COVID-19. The first pillar is the provision of emergency support to vulnerable sectors and individuals. The succeeding pillars are the provision of expanded medical resources and protection of frontline health workers, and the fiscal and monetary measures to finance emergency initiatives and keep the economy afloat.
The strategy has a combined value of $29.3 billion or 8% of GDP.
In its report, Fitch Ratings said the revision of the rating outlook from "positive" to "stable" took into account the adverse economic effects of COVID-19 and the enhanced community quarantine.
Fitch also said the affirmation of the "BBB" rating "reflects the Philippines' fiscal and external buffers, including its low debt-to-GDP ratio compared to peer medians and net external creditor position, as well as its still-strong medium term growth prospects."
Taking into account the impact of the pandemic, Fitch Ratings projects the Philippine economy to register a mild contraction of 1% this year.
In the succeeding years, nonetheless, Fitch Ratings expects the Philippines to return to its growth trajectory. Its baseline scenario shows the Philippine economy growing by 7% in 2021.
Dominguez said the approach that credit rating agencies have taken in assessing sovereign credit-worthiness at this time of the pandemic bodes well for the Philippines' ratings.
In their credit rating reviews at this time, debt watchers look at a country's policy space in addressing the pandemic, he said. Credit watchers also assess whether the impact on a sovereign is temporary and may be reversed soon or if it will lead to structural changes that will persist.
"On this basis, countries that have entered the crisis with buffers such as fiscal and monetary space, as well as strong external positions will see their resilience play an important role in keeping their ratings intact even at this challenging time,” Dominguez said. --KBK, GMA News