Moody’s maintains Philippine credit rating and outlook as it signals virus risk

MANILA – Moody’s Investor Service said Tuesday that it maintained its credit rating and outlook in the Philippines, highlighting the economic risk of the COVID-19 pandemic and the resulting blockades.

Gross domestic product could drop 2.5 percent in 2020, said Moody’s, which rated the Philippines at Baa2 or one level above the minimum investment grade. The outlook is stable, which means there will be no upgrade or downgrade.

A higher credit rating means that the Philippines can access a broader group of investors for debt and lower interest. Last week, Fitch Ratings lowered its outlook on the country from stable to positive, maintaining its score, one step below the minimum A score.

“The rapid and increasing spread of the coronavirus outbreak, the deterioration of the global economic outlook, the drop in oil prices and the turmoil in the financial market are creating a severe and extensive economic and financial shock,” Moody’s said in a statement.

The Philippines’ first quarter GDP unexpectedly contracted 0.2 percent, the first contraction since 1998, and according to analysts and economic managers, the next two quarters could be worse as it reflects the full effect of the blockade.

Metro Manila has been under “enhanced community quarantine” with most companies closed since March 17. It was extended twice and President Rodrigo Duterte is expected to decide in a week whether to extend it on May 15.

Other urban centers such as Cebu and Davao are also under ECQ until May 15. The rest of the country is under general community quarantine or GCQ with fewer restrictions.

Moody’s said it would improve the Philippines’ rating if there was a “marked convergence” between growth in per capita income and government revenue generation. A downgrade will occur if there is macroeconomic instability and reversal of reforms, he said.

“Moody’s expects that the Philippines’ real GDP growth will remain strong relative to its peers and that its fiscal metrics will continue to strengthen as the government continues to move forward on its socio-economic reform agenda, particularly on tax reform,” he said.

However, the global coronavirus outbreak threatens the Philippines through various channels, including trade, supply chain linkages, investment, remittances and tourism, while stringent containment measures will also dramatically reduce the internal demand, “he said.