Budget delay may weaken credit rating

A delay in the passage of the 2021 national budget may hurt the economy’s chances of a quick recovery from the pandemic. — PHILIPPINE STAR/EDD GUMBAN

By Luz Wendy T. Noble, Reporter

A DELAY in the passage of the 2021 national budget will not just weigh on the Philippine economy’s recovery from the pandemic, but also affect its credit profile, according to Moody’s Investors Service.

However, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the 2021 national budget will likely be passed on time, as legislators are aware of how crucial it is for economic recovery.

“I think the possibility of a reenacted 2021 budget is nil. The President [Rodrigo R. Duterte] has called for a special session just for the purpose and he also certified the budget bill as urgent,” Mr. Diokno said in a text message to BusinessWorld on Saturday.

“I also think the legislators from both houses of Congress are aware how important the early approval of the 2021 budget is for the economy’s recovery from the coronavirus pandemic and for preparing the Philippines for future crises,” he added.

The House of Representatives approved the P4.5-trillion budget last week, but suspended session until Nov. 16 amid a leadership squabble. This prompted business groups and economists to warn the delay may lead to a reenacted budget that will prevent the release of much-needed funds for recovery efforts next year.

On Friday, Mr. Duterte called on Congress to hold a special session from Oct. 13-16 to prioritize the budget’s passage.

Moody’s Senior Vice-President – Sovereign Risk Group Christian de Guzman told BusinessWorld the delay in the budget’s passage may weaken the country’s credit profile, specifically in terms of governance strength.

“A delay in the passage of the 2021 budget leading to a reenactment of this year’s budget will not only preempt a faster economic recovery, but could also point to deficiencies in institutions and governance strength that may undermine the Philippines’ credit profile if sustained,” Mr. De Guzman told BusinessWorld in an e-mail.

Moody’s maintained its “Baa2” rating with a stable outlook for the Philippines in July, saying its fiscal position in recent years will help cushion the impact of the pandemic crisis on the economy.

The debt watcher expects the economy to slump by 7% this year, before seeing a 6.8% growth by 2021.

In a credit opinion published in September, Moody’s said one risk for a rating downgrade include “a material deterioration of institutions and governance strength, with signs of erosion in the quality of legislative and executive institutions.”

The government’s target to secure an “A” rating has taken a backseat amid the COVID-19 pandemic. The economy contracted by a record 16.5% in the second quarter, and is expected to contract between 4.5% to 6.6% this year. Economic managers expect gross domestic product (GDP) to grow by 6.5-7.5% next year.

Should Congress fail to submit the budget in time for President Rodrigo R. Duterte’s signature by the end of the year, this would be the second time the administration will operate on a reenacted budget.

To recall, the 2019 budget was only passed in April of the same year, resulting in a reenactment of the previous year’s spending plan. The budget delay brought the country’s GDP growth to 5.9% for the full year 2019, the slowest in eight years.