Moody’s flags added credit risk

By Melissa Luz T. Lopez, Businessworld, November 15, 2016

A SHIFT to anti-immigrant policies in the United States could pose risks to the Philippines’ credit rating, as it could disrupt remittance flows that have been supporting strong domestic consumption, Moody’s Investors Service said in a report.

“A policy shift that would disrupt immigration into the US would be credit negative for countries more highly dependent on remittance flows including El Salvador, the Philippines and Vietnam,” the credit rater said in its 2017 global outlook released Monday, pointing out rising political risks ahead of a Trump presidency in the US that starts in January.

“Taking campaign rhetoric at face value, the national security and defense policies under President Trump could significantly alter the geopolitical landscape and potentially raise geopolitical risks further.”

The Philippines has held a “Baa2” rating — a notch above minimum investment grade — with a “stable” outlook from Moody’s since December 2014.

Filipinos working in the US were the biggest source of cash remittances as of end-August at $5.789 billion, accounting for a third of the $17.642-billion total in those eight months.

Personal remittances — consisting of both cash and in-kind transfers of overseas Filipino workers to the Philippines — were equivalent to nearly a tenth of the country’s gross domestic product (GDP) in 2015, bigger than their 8.5% share in 2014.

In an earlier report, the debt watcher flagged the Duterte government’s fixation on its nationwide drug crackdown program that could result in “less effective policy making,” as this could sidetrack work on equally important economic reforms.

At the same time, Moody’s said that increased fiscal spending under President Rodrigo R. Duterte should unlock potentials for even faster economic expansion — a factor missing in the country’s growth story in past administrations.

Moody’s expects the economy to grow 6.5% this year and in 2017, still making the Philippines among Asia’s fastest-growing economies at a time of subdued prospects elsewhere.

Analysts at Nomura Global Research and Capital Economics have said that the Philippines had the “most to lose” should Mr. Trump carry out his campaign promise of an “America first” agenda, which would shut out immigrants, slap heavy import tariffs and keep jobs at home. If implemented, these changes would drastically impact on remittances, exports, and the booming business process outsourcing sector that employs over a million Filipinos.

In particular, Nomura expects the impact of Mr. Trump’s policy reforms to cause a 0.2 percentage-point slide in GDP growth next year, although a state spending surge and increased trade with China could help temper the blow.

Moody’s said the outlook for rated sovereigns is “negative overall,” amid a challenging, highly volatile global landscape expected in the coming year.

“The key drivers of that negative outlook are a combination of continued low growth, high public-sector debt which will likely rise further with expansionary policies and domestic and regional political tensions that adversely affect the development and implementation of public policy,” the Moody’s report read.