Credit rating agency Moody’s Investors Service yesterday said the containment measures to reverse the latest surge in coronavirus infections will affect the country’s economy and will be “credit negative.”
More specifically, Moody’s said the measures “will delay economic recovery, weigh on prospects for fiscal consolidation and exacerbate social risks.”
Moody’s currently rates the Philippines at lower medium investment grade Baa2 with stable outlook.
“Because the restrictions are unlikely to restore infection rates to the better levels of earlier in the year, some of the restrictions will likely remain in effect well into the second quarter, threatening our forecast for a 7 percent rebound in real GDP (gross domestic product) growth in 2021,” Moody’s said.
The 7 percent is at the mid-point of the government’s forecast range of between 6.5 and 7.5 percent for this year. The economy is technically in a recession after posting its worst contraction on record in 2020, as it shrank 9.5 percent due to the impact of the pandemic.
According to Moody’s, the Philippines had the deepest contraction among large, developing Asean economies last year.
“(Its) inability to contain the spread of coronavirus slows the return of aggregate output to its 2019 peak: nominal GDP in 2020 amounted to P18.0 trillion or $362.9 billion, 7.9 percent lower than P19.5 trillion or P377.1 billion in 2019,” Moody’s said.
The credit rating agency stressed that weaker economic growth “diminishes prospects for fiscal and debt consolidation.”
In 2020, national government debt rose sharply to 54.5 percent of GDP from 39.6 percent the previous year.
“The government’s 2021 budget calls for 10 percent growth in spending, assuming that economic recovery is firmly entrenched by the second half. The tightened restrictions on households and businesses have prompted calls for another stimulus package while the weak economy weighs on taxable income,” Moody’s said.
“The government’s new measures could reverse recovery in the unemployment rate, which fell to 8.7 percent in the first quarter from a peak of 17.6 percent in the second quarter of last year; and the poverty incidence rate, which fell to 16.7 percent in 2018 from 26.3 percent in 2009 amid rapid economic growth,” Moody’s added.
On March 22, the Philippine government began new pandemic containment measures as daily coronavirus infections surpassed last year’s highs.
Over the weekend, these containment measures were elevated to the strictest level of enhanced community quarantine. This started yesterday and will end on April 4.