Moody’s cites risk to 2019 growth view

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By Melissa Luz T. Lopez
Senior Reporter

MOODY’S Investors Service sees a chance of even slower growth for the Philippines this year, with local construction works bogged down by budget delays and little support from subdued global demand.

Moody’s senior credit officer Christian de Guzman said the economy could reel from the impact of a slower-than-expected rollout of infrastructure projects, in light of delays in the enactment of the P3.757-trillion national budget for 2019.

A weakening external environment would also weigh on growth prospects, the debt watcher said.

“There continues to be downside risk to our current forecast for real GDP (gross domestic product) growth of 6.2% for 2019,” Mr. de Guzman said in a recent e-mailed response to questions.

Philippine GDP grew by just 6.2% in 2018, pulled down by a slower-than-expected 6.1% in the fourth quarter as agriculture output slowed sharply, while inputs from the services and industrial sectors also posted slower increases compared to 2017.

“In addition to the budget delays and the election ban on spending, the Philippines is faced with an adverse external environment for its exports, as well as some of the key sources of overseas Filipino remittances,” Mr. De Guzman added.

The national government has been operating under a re-enacted budget with the latest spending plan yet to be signed by President Rodrigo R. Duterte, as the bill languished in Congress amid allegations of questionable insertions and realignment of funds for the Department of Public Works and Highways.

This leaves new programs and projects unfunded.

Authorities are also racing against time as public works will be covered by a 45-day ban imposed by the Commission on Elections ahead of the May 13 polls.

Economic managers have said they will ask the poll body to exempt priority construction projects from the March 29-May 12 ban in order to catch up with targets and minimize the impact of project delays on overall growth.

On the monetary front, Mr. De Guzman said Moody’s expects benchmark interest rates to be “less accommodative” despite slowing inflation, following a series of hikes last year which brought benchmark yields 175 basis points higher. The central bank has kept these rates steady since November, leaving the key rate of 4.75% the highest in a decade.

Despite risks, the country’s credit rating — pegged one notch above minimum investment grade — remains intact for now.

“Our outlook on the Philippines’ Baa2 rating remains stable,” Mr. De Guzman said, referring to the likelihood the rating will be maintained over the next year or so.

“Despite the headwinds to growth mentioned above, we continue to expect the Philippines to be among the fastest growing countries in the region and among similarly rated peers.”

Slower inflation as well as continued improvements in tax collections are expected to help buoy Philippines’ fiscal strength, while slower growth and lower global oil prices should help contain the country’s trade deficit.

A higher credit rating reduces the cost of borrowing for a country. Moody’s affirmed the country’s rating in July last year, but flagged that domestic political developments – particularly a weak rule of law and corruption – could weigh on investor appetite.