S&P GLOBAL RATINGS is expecting a “modest” increase in net general government (GG) debt next year assuming the Philippines needs to deal with further waves of coronavirus disease 2019 (COVID-19), but such deterioration in debt metrics is unlikely to impact the sovereign rating.

In a note issued Monday, the ratings agency projected net GG debt at 45.4% of the overall economic output next year, higher than its baseline forecast of 44%, under a scenario of two more COVID-19 surges.

Interest expense as a percentage of GG revenue will edge up to 12.6% from the 12.2% baseline estimate.

“We do not expect the projected impact of the simulations here to affect the sovereign ratings of the Philippines. The higher debt levels in the simulation do not materially affect country’s debt assessment… The increases in government debt in the simulations are relatively modest,” YeeFarn Phua, director at S&P Global Ratings said in an e-mail responding to BusinessWorld queries.

He said the debt increase under such a scenario will pay for additional measures needed to deal with future surges, noting that debt will remain well within the S&P forecast range for the Philippines.

Mr. Phua said the ratings agency has taken into account much of the impact of the pandemic in its outlook for Philippine budget balances in 2021-2022.

S&P last week trimmed its economic growth outlook for this year to 4.3% from the 6% estimate it issued in June as quarantine measures were tightened once more due to rising COVID-19 cases. It is expecting a 7.7% expansion in 2022.

The Philippines experienced a fresh surge in COVID-19 infections early this month as the highly contagious delta variant gained traction around the country.

The Health department reported a record 18,332 fresh cases Monday, pushing the tally of active cases to 130,350.

“Despite the recent surge in COVID infections, our ratings on the Philippines remains on a stable outlook. It reflects our expectation that the Philippine economy will recover to healthy rates of growth as the COVID-19 pandemic is better contained, and that the government’s fiscal performance will materially improve,” Mr. Phua said.

S&P affirmed in May its “BBB+” rating on the Philippines, with a “stable” outlook.

S&P said in its report that sovereign ratings of most Asia-Pacific economies will likely withstand the potential damage of two more waves of COVID-19 outbreaks.

“Our two-wave simulation shows weakened credit support for some governments, but few sovereigns are likely to see lower ratings as a result. Deterioration in the fiscal metrics are most pronounced, similar to the actual impact of the pandemic since April 2020. For this period, we have lowered our fiscal performance assessments on about 50 sovereigns,”according to the report.

“For many of these sovereigns, the longer-term impact of COVID-19, and other factors, prevent governments from returning to pre-pandemic budgetary positions. In the simulations, however, we assume that new outbreaks do not damage future fiscal performances,” it added.

However, if interest rate and revenue trends turn out worse than expectated, S&P said the additional outbreaks could affect the sovereign ratings of more economies, with Malaysia, Australia, and Vietnam, being more sensitive to heavier debt burdens. — Beatrice M. Laforga