Moody’s vote shows economy on right track, officials say

Moody’s Investors Service affirming the country one-notch above investment grade is expected to further boost growth as it showed to prospective investors that the economy remains on track, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said.

“The decision of Moody’s speaks well regarding the favorable path that the Philippine economy continues to tread, partly on account of the price and financial stability that comes on the back of prudent monetary policies and bank supervision,” Tetangco said in a statement.

“The banking sector, which remains strong and stable, will also continue to support the increasing potential output of the economy as it provides financing for growing investment and consumer demand,” he added.

Moody’s last week affirmed its Baa2 rating, with a stable outlook, on the country.

Moody’s gave the Philippines an investment in October 2013 citing the stability of the country’s financial sector.

Moody’s, in a statement, said it maintained the ratings on the country on expectations “that the Philippines’ economic performance will remain strong while debt consolidation will continue and foster further convergence of key fiscal metrics versus corresponding peer medians.”

It sees sustained domestic expansion of above six percent in the near term, after noting the 6.4 percent annual average growth of the economy from 2014-16.

The debt rater also noted the improving debt management ability of the government after the improvement of unconsolidated general government debt to 38.3 percent of GDP in 2016 from 47.8 percent in 2009.

”We project the Philippines’ indebtedness to remain low over the medium-term compared tosimilarly-rated sovereigns, with general government debt falling to around 37 percent of GDP by 2017,” it said.

Finance Secretary Carlos Dominguez III said the current rating on the country “is a telling mark of the Duterte administration’s heightened efforts to sustain the robust growth of the Philippines by attracting more investments and, more importantly, to make it a more inclusive one by raising spending on infrastructure and human capital.”

He added the government is committed to further sustain economic reforms, through the proposed tax reforms, among others.

In response to Moody’s worries about the ongoing conflict in Marawi City in southern Philippine, Dominguez said the government was on top of the situation.

He explained that “imposition of Martial Law in Mindanao, which is allowed under the Philippines’ Constitution and which has won support from the people, the business community, and the Congress, shows that the government is doing what is required to address this situation within the bounds of the law.”

“This decisive action was taken to insulate the vibrant domestic economy from the conflict,” he said.

“This administration continues to take actions to sustain the growth momentum and enhance investor confidence in the economy, and the ongoing efforts toward strengthening national security are testament to this commitment,” Dominguez added.

Dominguez said the business process outsourcing (BPO) sector, which is expected to be affected by protectionist policies in the US, was seen to remain among the growth drivers of the economy.

“At the end of the day investors make decisions based on what are good for business. And the Philippines, with its competitive cost, and young and educated workforce, will continue to be a wise investment destination for BPO companies and other enterprises,” he added.

At the same time, Moody’s mentioned improving debt manageability, as the unconsolidated general government debt (which does not net out holdings of social security institutions) slid to just 38.3 percent of GDP last year from 47.8 percent in 2009.

“[W]e project the Philippines’ indebtedness to remain low over the medium term compared to similarly rated sovereigns, with general government debt falling to around 37 percent of GDP by 2017,” Moody’s said.

Moody’s also acknowledged the ability of the Philippines to withstand risks, given prudent monetary policy and reliable banking sector.

Dominguez pointed out that financial institutions here in the Philippines and abroad have lauded Malacañang’s commitment to further economic reforms. This commitment is shown in part by the House of Representatives’ recent approval of the first package of the Comprehensive Tax Reform Program, which President Duterte himself had certified as a priority measure crucial to his ambitious spending program on infrastructure, human capital, and social protection for the poor and other vulnerable sectors. LUIS LEONCIO