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By Melissa Luz T. Lopez
Senior Reporter

Debt raters find PHL still attractive

Posted on December 01, 2016

THE PHILIPPINES remains a viable destination for foreign investors as fiscal and economic policies remain intact despite political risks, international credit raters said, noting that an unblemished growth story should sustain optimism.

Credit analysts from S&P Global Ratings and Moody’s Investors Service yesterday said the Philippine economy is poised to remain upbeat despite political risks stemming largely from the “unconventional” ways of President Rodrigo R. Duterte and heightened global uncertainty.

“It’s true that perceptions of political risks have increased in the Philippines mainly because the current President is a relatively unconventional political figure by Philippine standards. For quite a while he’s been making public remarks that have raised concerns of certain people, particularly in his public announcement that he’s going to distance the Philippines from the US, its traditional ally,” analyst Kim Eng Tan said in an S&P webcast.

“On the other hand, while he has been making all these pronouncements publicly, we have not seen significant changes in macroeconomic policies in the country and we haven’t seen domestic policies turning more negative for foreign investors.”

The Philippines may even turn out to be a more palatable investment destination amid easing tensions with China under Mr. Duterte’s presidency, coupled with sustained economic policies and reforms.

“Overall, despite his rhetoric, if he continues to pursue economic policy among these lines, we could actually see improvements for economic support for the rating,” Mr. Tan added.

“As for now, we are still keenly awaiting what policy changes they may be coming up with.”

Mr. Duterte’s economic team announced a 10-point socioeconomic agenda just days after his landslide win in the May 9 elections, assuring investors of policy continuity.

Separately, Moody’s vice-president and senior credit analyst Christian de Guzman said political risk have done little to unnerve investors already in the country, but may have prompted new entrants to hold back.

“Our assessment of political risk hinges on the potential to impact economic and fiscal outcomes. In the current context, the president’s rhetoric has not led to a pullout of existing investments, while there may be some hesitation with regards to decisions on new foreign direct investment,” Mr. de Guzman said in a recent e-mail.

“We also see little evidence that the unpredictability of foreign policy spilling over into the area of fiscal or economic policy, which has thus far been well articulated in the 10-point socioeconomic agenda.”

This comes after Mr. Duterte’s most recent tirade against the West’s “bullying and hypocrisy,” highlighted by his announcement in China last October of his “separation” from the United States.

Mr. de Guzman, however, flagged that a “disproportionately large focus on political matters may detract attention away” from much-needed policy reforms, including the need to raise more taxes to fund the government’s “ambitious” spending plans, particularly for infrastructure and social services that are key to making the country’s fast economic growth more inclusive.

Net foreign direct investments to the Philippines stood at $5.406 billion for the first eight months of the year, 71.1% higher than the $3.159 billion recorded during the comparable year-ago period, according to central bank data.

The two debt watchers also pointed out that the Philippine economy is poised to remain among the fastest-growing economies in the region, with the 7.1% gross domestic product (GDP) growth seen during the third quarter providing a boost to the country’s prospects over the near term.

“There is indeed upside risk to our current full-year forecast given the very strong performance in the third quarter,” Moody’s Mr. de Guzman said, referring to the current 6.5% GDP growth estimate for this year and 2017.

Paul Gruenwald, S&P’s chief economist for Asia-Pacific, noted that booming business process outsourcing (BPO) activity and fiscal prudence observed by the national government remain “structural” strengths of the Philippine economy.

“The BPOs, together with fiscal improvement, have really driven sentiment and growth in the Philippines... If the BPO trend continues and the confidence based on the fiscal prudence continues, there’s no reason that the current trajectory of Philippines would change much over our forecast horizon,” Mr. Gruenwald also said during the webcast.

S&P analysts peg 2016 GDP growth also at 6.5% as of October.

The Philippines holds a “Baa2” rating from Moody’s and a “BBB” rating from S&P both with a “stable” outlook, remaining one notch above minimum investment grade, helping to keep borrowing costs for the country low.