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PHL seen to remain a laggard in ASEAN

The Philippines is likely to see “substantial scarring” to economic output from the coronavirus pandemic. — PHILIPPINE STAR/ MICHAEL VARCAS

By Luz Wendy T. Noble, Reporter

THE PHILIPPINE ECONOMY is likely to be among the laggards in Southeast Asia this year as policy direction in pandemic management remains unclear, analysts said. 

At Fitch Ratings’ Credit Outlook Asia Pacific 2022 forum, the debt watcher said it will continue to monitor the country’s debt metrics and the fiscal policy of the upcoming administration.

“When you think about Indonesia, Thailand, the Philippines, these are countries that have been deeply hurt by the pandemic, and still don’t see any clear light as to how they will approach 2022, in opening up their economy, drawing foreign tourists to come back, which is such a critical component of their economy,” Taimur Baig, managing director and chief economist, Group Research at DBS Bank said at the virtual forum on Wednesday.

Mr. Baig said the Philippines, along with Thailand, Indonesia and Malaysia, will face “substantial scarring” to economic output from the coronavirus disease 2019 (COVID-19) pandemic.

“These countries in the last two decades have invested so much on tourism, high-end tourism, low-end tourism, mass Chinese tourism, fancy European and US tourism,” he said.

However, the continued surge in COVID-19 infections has dampened tourists’ interest in these markets, Mr. Baig said. He noted these countries, which heavily rely on international tourism, are missing Chinese tourists as China continues to keep its borders shut in line with its zero-COVID policy.

The Philippine economy contracted by a record 9.6% in 2020. For the first nine months of 2021, gross domestic product (GDP) grew by 4.9%. Economic managers raised their GDP growth forecast to 5-5.5% for 2021, after mobility curbs were eased and business capacity increased as COVID-19 cases fell.

Nomura Holdings, Inc. Chief ASEAN (Association of Southeast Asian Nations) Economist Euben Paracuelles said the Philippines and Indonesia would be “laggards” in the region as they continue to struggle to contain COVID-19 and face the threat of emerging variants.

“Vaccination is important. Healthcare infrastructure is important. And for Indonesia and Philippines, I think they’ve struggled a lot [in these areas],” Mr. Paracuelles said.

The Philippines has fully vaccinated more than 56 million Filipinos, based on data from the Department of Health. The government now aims to fully vaccinate 77 million people against COVID-19 by the end of March.

The Health department reported 22,958 new COVID-19 infections on Wednesday, bringing active cases to 270,728. It also confirmed the first local deaths caused by the highly infectious Omicron variant — two unvaccinated people with existing medical conditions.

The country’s debt levels and fiscal space will closely be assessed as the pandemic drags on, said Sagarika Chandra, director, Asia-Pacific Sovereign Ratings.

“There are certain concerns that we have about the recovery. And you know, whether the authorities will be able to stick to the fiscal policies, which we saw prior to the pandemic — it is something which is quite important for us,” Ms. Chandra said.

Over the course of the crisis, Ms. Chandra said the country’s debt ratio largely increased, although it is still below the median for its BBB-rated peers.

The country’s debt-to-GDP ratio stood at 63.1% as of end-September, based on data from the Bureau of the Treasury. This is the highest in 16 years or since the 65.7% seen in 2005.

In July 2021, the debt watcher revised its outlook for the Philippine investment grade “BBB” sovereign rating to “negative” from “stable,” which means there could be a downgrade in the next 12 to 18 months.

“The macro-policy framework, and how prudent the government is with respect to fiscal management, that’s an important driver of rating and the outlook for the Philippines, especially given the increase in debt levels,” she said.

Ms. Chandra said they will also await the outcome of the May presidential elections for clarity on the economic recovery outlook.

The ratings agency expects the GDP to grow by 6.8% this year, which is below the government’s 7-9% target.

“We’ll have to assess what the policy outlook is post-elections and what it means for overall fiscal as well as the recovery prospects for the Philippines,” she said.

Separately, credit raters expect the local banking sector to recover this year as profits improve despite the pandemic and the likely increase in interest rates.

The gradual improvement of the economy this year will in turn improve prospects for the banking industry, said Tamma Febrian, associate director, and Willie Tanoto, director of the Asia-Pacific banking team of Fitch Ratings.

“The more supportive operating environment should buoy business and consumer demand, and drive credit costs lower for most banks, aiding their overall profitability,” the analysts said in an e-mail.

“Nonperforming loans (NPL) formation appears to have also slowed down in the last few months of 2021, owing to the opening up of the economy, and we expect it to stabilize in the near term,” they added.

The bad loan ratio in November stood at 4.35%, the lowest in eight months or since the 4.21% in March 2021, as the banks’ loan portfolio expanded.

It helped that the industry has ample capitalization which “provided cushion” for credit losses, S&P Global Ratings associate director Nikita Anand said.

“Banks’ disposal of NPLs to asset management companies could also bring down the level of stressed loans visible in the system,” Ms. Anand said in an e-mail.

On the other hand, Fitch’s Mr. Febrian and Mr. Tanoto said there is still a risk to asset quality due to pandemic uncertainties and the impending monetary policy tightening.

“If rising global interest rates were to also pull up domestic lending rates significantly later in the year, that could also dampen demand for credit and add to borrowers’ interest burden, which could pressure asset quality,” Mr. Febrian and Mr. Tanoto said.

The US Federal Reserve and many other central banks have started to raise interest rates. The BSP said it will still prioritize support for economic recovery, with Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno saying a rate hike in the first half of 2022 is unlikely.

Central bank data showed the banking system’s total assets as of end-November rose by 7% year on year to P20.4 trillion.