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Moody's affirms Philippine credit rating, outlook

Global credit watcher Moody's Investors Service on Thursday affirmed the Philippine credit rating at ‘Baa2’ with a stable outlook but flagged downward risks such as the country’s fiscal and government debt metrics.
The affirmation of the credit rating keeps the Philippines one notch above the minimum investment grade, with obligations subject to moderate credit risk and are considered medium-grade.
“The rating action is driven by Moody’s view that the challenging global credit conditions will not derail the Philippines' ongoing recovery from the coronavirus pandemic,” Moody's said.
The Philippine economy grew by 7.4% in the second quarter, slower than the 8.2% in the first three months of the year and 12.1% in the same quarter of 2021.
However, Moody's said that the impact of the COVID-19 pandemic drove an “erosion” in its assessment of the Philippine economy's strength.
“Moreover, continued policy orthodoxy and commitment to reform amid political transition will help to assure gradual fiscal repair following the reversal of the strengthening of the government’s fiscal and debt metrics resulting from the pandemic,” it said.
“The Philippines also retains fundamental strengths with regards to the stability of its banking system and the capacity to meet external debt repayments, notwithstanding cyclical pressures on the balance of payments and consequent exchange rate depreciation,” it added.
Data from the Bangko Sentral ng Pilipinas (BSP) shows that the balance of payments (BOP) deficit hit $1.819 billion in July, reversing the $642-million surplus in the same month in 2021.
The latest payments position is also the country’s biggest deficit in 17 months since February 2021’s $2.019 billion, and compares with the $1.574-billion deficit in June.
Moody's also affirmed the Philippine government’s foreign currency senior unsecured shelf rating at (P)Baa2, and the senior unsecured ratings for the central bank’s liabilities at Baa2.
“In Moody's view, the rebound in economic activity since mid-2021 has been strong and will be resilient to the current challenges posed by the turn in global credit conditions over the near term,” it said.
“The Philippine economy is not significantly exposed to Russia, although the European Union has historically been an important source of investment and demand for the country's goods and services exports,” it added.
It noted, however, that factors that could prompt a downgrade include “a greater deterioration” in fiscal and government debt metrics compared with peers.
It also flagged the possible erosion in the country’s external payments position, which threatens liquidity conditions.
Latest data available from the Bureau of the Treasury (BTr) shows that the Philippine government’s running debt swelled to a new record-high of P12.89 trillion as of end-July 2022.
“The reversal of reforms that have supported prior gains in economic and fiscal strength, as well as substantial deterioration in institutions and governance strength, would also be negative,” Moody's said. — VBL, GMA News