The decision of credit watcher Moody’s Investor Service to maintain the Philippines’ debt rating and outlook is a positive development given the economic malaise that is spreading around the world due to the COVID-19 pandemic, the head of the central bank said on Tuesday (May 12).
In a statement to reporters, Bangko Sentral ng Pillipinas (BSp) Governor Benjamin Diokno said the country is standing on solid fiscal and monetary ground as it prepares to weather the expected economic contraction this year.
“Given the unprecedented collapse of the global economy, the recent Moody’s credit opinion of the Philippines — maintaining it Baa2 stable outlook — is actually a vote of confidence on the country’s strong macroeconomic fundamentals and the way the Philippine government is managing the coronavirus pandemic,” he said.
In addition to maintaining its rating and outlook for the Philippines, which is effectively two notches below the coveted investment grade of ‘A’, Moody’s predicted that the local economy may contract by as much as 2.5 percent this year. The central bank chief expects a contraction of only 1 percent.
“As I said before, the once in a lifetime COVID-19 crisis hit the Philippines from a position of strength,” Diokno assured. “It has ample fiscal and monetary space.”
To date, the central bank has reduced key interest rate by 125 basis points, and cut bank reserves by 200 basis points, with another reduction of the same magnitude primed to go — all with the goal of flushing the financial system with growth-inducing cash.
Diokno also proposed that the government reallocate some P400 billion of fiscal output into “quick disbursing” programs, like a nationwide work scheme that will involve residents of over 42,000 barangays across the country.
He urged this realignment of fiscal resources despite the adverse impact it would have on the government’s drive to attain a historic ‘A’ credit rating for the country, saying this goal “could wait”.
“While the economy is likely to contract this year, the contraction would be less severe compared to most economies in the world,” the central bank chief assured. “In fact, barring a second wave of infections, I expect the Philippine economy to have a strong rebound, estimated at 7.8 percent in 2021.”
Edited by TSB
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