By Corina Oliquino
MANILA – Debt watcher S&P Global Ratings confirmed its BBB+ credit rating with a stable outlook on the Philippines, forecasting the country’s strong bounce back with a growth of nine percent for the domestic economy in 2021 from a projected zero to two percent contraction this year due to the coronavirus pandemic.
“Although the economic slowdown will weigh heavily on fiscal and debt metrics over the near term, we expect a meaningful stabilization over the next three to four years owing to strong economic fundamentals and generally orthodox policy-making,” the debt rater said.
If COVID-19 will be contained in the first half of 2021, S&P’s growth outlook for the Philippines will likely happen.
The debt watcher also noted that its growth projection for the country will be the “slowest economic growth rate since the Asian financial crisis, it is in line with the deep downturn we forecast for the global economy.”
In a report by The Philippine Star, the country’s economy last contracted by 0.5 percent in 1998 due to the Asian Financial Crisis.
In the first quarter of 2020, the country’s gross domestic product (GDP) dipped by 0.2 percent to end 84 straight quarters of growth.
In another report by the Philippine News Agency (PNA), S&P added that the rating’s outlook “reflects our expectations that the economy will continue to achieve above-average growth over the medium term, which will drive constructive development outcomes and underpin broader credit metrics.”
“Although the country’s fiscal and debt settings will deteriorate due to the Covid-19 stimulus measures, the government’s long track record of fiscal prudence provides some buffer, assuming a meaningful stabilization begins in 2021. The ratings are also supported by the economy’s sound external settings,” it said.
The debt watcher also credited the country’s past reforms which benefit the domestic economy, adding it enabled the Philippines to become “one of the fast-growing economies in the world due mainly to supportive policy dynamics and improving investment climate.”
“The economy’s constructive trajectory is underpinned by strong household and company balance sheets, sizable inward remittance flows and an adequately performing financial system. Prior to the outbreak of Covid-19, the country’s unemployment rate had been declining for a few years, signaling the economy’s strengthening labor market even as the working-age population continued to grow,” it said.
To ensure the economy will recover post-COVID, the government, according to PNA, has formulated a ₱1.7 trillion four-pillar program with S&P forecasting it will widen the government’s budget deficit to 7.3 percent in domestic output this year.
“This budget deficit level vis-à-vis the gross domestic product (GDP) is seen to increase the net general government debt stock to about a decade high of 35 percent of GDP but S&P said this level is lower compared to similarly-rated economies,” the report noted.
S&P added that the proposed Corporate Recovery and Tax Incentives for Enterprises Act or CREATE (formerly CITIRA) aimed at reducing corporate income tax rate to 25 percent from 30 percent and rationalize investment incentives, will have a supporting effect on the economy over near-term.
It expects the Philippine peso to “remain stable,” with the current account balance likely to book a surplus of 0.5 percent of the GDP this year from a deficit of 0.1 percent last year.
In April 2019, S&P upgraded the country’s credit rating to BBB+ or a notch lower than the target A scale to prompt the Philippine government to launch its “Road to A” initiative aimed at achieving an A rating by 2022.
In a previous statement, Bangko Sentral ng Pilipinas Gov. Benjamin Diokno said the ‘A credit rating’ initiative will be set aside at the moment as the current focus is on pulling the economy back on high growth trajectory by creating more jobs post-coronavirus.
Finance Sec. Carlos Dominguez III, on the other hand, said the BBB+ rating shows the debt watcher’s “unequivocal recognition” of the economy’s resilience.
“We are confident that our government’s four-pillar strategy to deal with the pandemic will see us through this global health emergency as we remain focused on saving lives and protecting communities while gradually lifting mobility restrictions to restart the economy and get people back to work,” he said in a statement according to PNA.
Moreover, Acting Socioeconomic Planning Secretary and National Economic and Development Authority (NEDA) Director Gen. Karl Kendrick Chua said the government’s fiscal space and buffers serve as a “springboard for the government to finance needed programs on healthcare, infrastructure and the entire food value chain.”
“No country has been spared from the economic effects of this global pandemic but our strong economic fundamentals and inclusive recovery measures will power our return to growth,” he said.