Moody’s maintains RP rating despite slowest GDP growth

MANILA, Philippines – New York-based Moody’s Investors Service kept the stable outlook on the Philippines despite projections that it would post the slowest economic growth in Southeast Asia this year.

Tom Byrne, Moody’s Singapore-based senior vice president and regional credit officer, stated in its regional outlook entitled “Asia-Pacific Ratings are Demonstrating Resiliency” that the gross domestic product (GDP) of the Philippines would expand by three percent this year from about one percent last year.

The country’s projected GDP growth this year would be the slowest in Southeast Asia compared to Vietnam’s 5.7 percent, Indonesia’s 5.6 percent, Malaysia’s 4.3 percent, and Thailand’s four percent.

It is also below the average GDP growth of 4.7 percent of the five member nations of the Association of Southeast Asian Nations or Asean 5.

The GDP growth forecast of Moody’s this year was within the growth range of between 2.6 percent and 3.6 percent set by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) for this year.

Economic managers believed that the country’s GDP growth slackened to between 0.8 percent and 1.8 percent last year from 3.8 percent in 2008 due to the full impact of the global financial crisis.

Byrne said the sovereign rating of the Philippines was last upgraded to Ba3 from B1 last July due to its external payments position and resilient banking system amid the global financial turmoil.

A Ba3 rating is three notches below investment grade while a B1 rating is four notches below investment grade. The outlook on the ratings is stable.

“A strong external payments position and stable financial system provide time for the government to return to a path of fiscal consolidation, after the effects of the global recession dissipate,” Byrne stressed.

After abandoning a commitment to balance the budget in 2008 and its original 2010 schedule, the government expects to balance its budget by 2013. It hopes to get back on the fiscal consolidation path this year.

The Philippines has set a record P250-billion deficit equivalent to 3.2 percent of GDP last year eclipsing the previous record of P210.7 billion or 5.3 percent of GDP registered in 2002.

However, the deficit likely swelled to between P298 billion or P300 billion as the weak economy pulled down revenue collections while the government accelerated spending to cushion the impact of the global economic meltdown.

Byrne pointed out that current account surpluses and minimal exposure to the post-Lehman credit panic have boosted official foreign exchange reserves to record heights well above pre-crisis levels including China, Thailand, and the Philippines.

“External payments positions have strengthened, but renewed capital inflows present policy challenges,” he added.

Moody’s said regional sovereign ratings would likely remain resilient to economic risks coming to the foreground as the global economy recovers from the crisis that emanated from the US and Europe.

Regional rating trends were generally positive in 2009 with no downgrades originating exclusively from the global crisis. –Lawrence Agcaoili (The Philippine Star)