The Philippines’ macroeconomic fundamentals remain sound despite a record contraction of gross domestic product due to the impact of the coronavirus pandemic, according to the central bank chief.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said it was unlikely for international debt watchers to downgrade the Philippines’ credit rating which stood at only one notch below the coveted “A” level when the COVID-19 pandemic struck.

In a statement, Diokno said from January to June, rating agencies Fitch, Moody’s and Standard and Poor’s had downgraded the credit ratings of 82 countries and changed to negative the rating of 104 others. “The Philippines is not one of them,” Diokno said.

Instead, Diokno pointed out that these debt watchers, whose assessments of the country’s economy play a significant role in determining how much Filipinos pay for loans, have affirmed the country’s investment grade ratings and outlook.

“The sharp fall in second quarter GDP does not pose a danger to the Philippines strong macroeconomic fundamentals,” said Diokno.

These included “relatively low debt-to-GDP ratio, one of the highest tax effort in the region, benign inflation and well managed inflation expectations, strong peso, hefty gross international reserves, well capitalized banking system with low non-performing loans,” he said.

Despite this, private sector market watchers remained cautiously doubtful about the country’s debt standing.

“What happens when solid, above-average growth no longer is achievable?” ING Bank Manila senior economist Nicholas Mapa said in a note to reporters. “With no consumption, government revenue streams dry up with the recent pandemic showcasing that point clearly.”

He explained that strained revenue streams will eventually put pressure on the fiscal position and eat away at the buffers erected over the years of fiscal discipline.

“Can we maintain our sterling credit rating even if our growth trajectory stalls to a lower path?,” he said. “With the Philippines likely entering a dirty L-shaped recovery and into a lower GDP path, we won’t be surprised if we see a negative outlook from one of the big three in the coming months.”

The central bank chief explained that economic managers view the economy’s plunge in the second quarter as “temporary” resulting from the strict and comprehensive lockdown during the period owing to the coronavirus pandemic.

“But the  recovery process is on its way and we expect a strong rebound of 6.5 to 7.5 percent in 2021,” he said.

As this developed, Diokno urged Filipinos to “look beyond the current crisis” and urged policy makers “to craft a strong economic recovery program accompanied by more structural reforms that would allow the Philippines to rebuild better for the future.”


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