Moody’s warns: political risk could disrupt growth

BY MAYVELIN U. CARABALLO, TMT, Manila Times, JANUARY 11, 2017

Reforms seen supporting PH economy for the medium term

Ongoing reform in the Philippines is likely to boost the country’s medium-term economic growth, Moody’s Investors Service said, but it warned that domestic political risk, though low, is becoming more unpredictable and could disrupt progress for the long term.

Moody’s analysis is contained in the report titled “Sovereigns—Asia Pacific: 2017 Outlook—Stable Outlook Balances External, Political Risks Against Economic, Institutional Reforms,” released on Tuesday.

The report said the outlook for creditworthiness of sovereigns in Asia Pacific, including the Philippines, is stable overall, reflecting a mix of credit-supportive and credit-challenging factors.

It expects rising income levels and strengthening institutions will offer support to several sovereign credit profiles in the region.

Moody’s expects that the expansion of gross domestic product (GDP) in the region will remain relatively robust.
However, lackluster growth in global trade and capital outflows may weigh on the credit profiles of those more dependent on external demand or financing, it said.

Given this context, Moody’s said credit outcomes in 2017 will be determined by the effectiveness of ongoing reform efforts and the evolution of political risks.

It pointed out that authorities are formulating policies that range from those that address acute near-term challenges to those that set the stage for longer-term improvements in credit profiles.

But capacities to implement these policies differ across countries as evident in Moody’s scores for Institutional Strength, which vary greatly across the region, it said.

“The capacity of governments to implement measures and the effectiveness of policies in achieving the respective governments’ objectives will shape the sovereigns’ credit profiles over the coming year,” it added.

India, Indonesia, Philippines

In particular, reform measures taken by India, Indonesia and the Philippines are likely to support their economic growth for the medium term, the credit rating agency said.

Besides India, the Philippines has emphasized improvements in its business operating environment and greater infrastructure investment.

“The thrust of fiscal policy has been to increase revenue and provide space to ramp up spending on projects, including transportation and electricity generation. In both cases, poor infrastructure has been a significant constraint on the economy,” it said.

The government had planned that the country’s infrastructure budget – both national and local – should increase from P861 billion in 2017 to P1.898 trillion by 2022, or from 5.4 percent to about 7 percent of GDP.

Moody’s earlier said Philippine GDP could rise 6.5 percent this year, with key domestic drivers of growth expected to remain solid.

‘More unpredictable’

However, the credit rater said although political risk in the Philippines remains low, it has become more unpredictable than before.

It explained that political developments could interfere with the ability of governments to implement reforms and would exacerbate the negative growth impact of slower global trade and capital flow reversals.

Moody’s mentioned that since President Rodrigo Duterte came to power in June 2016, he has clashed with legislators over extrajudicial killings linked to the war on drugs, and sparked controversy over allowing a hero’s burial for the late president, Ferdinand Marcos.

“While Mr. Duterte has high approval ratings, a prolonged focus on political matters could detract attention from economic and fiscal reforms,” it said.

The debt watcher also recalled that Duterte has expressed his intent to pursue a more independent foreign policy – including ending joint military exercises with the US armed forces – and signaled closer ties with Beijing, setting aside the Permanent Court of Arbitration ruling in July 2016 that invalidated China’s territorial claims to much of the South China Sea.

“While this has yet to translate to official policy changes, political risks are more unpredictable than they were before,” it stressed.

How a 22-Year-Old Girl Became a Millionaire In 30 DaysHow a 22-Year-Old Girl Became a Millionaire In 30 Days The fat on hips and waist will melt! Diet: morning: 2 eggs and 1…The fat on hips and waist will melt! Diet: morning: 2 eggs and 1…