Moody’s: Virus surge, lockdown ‘credit negative’ for PHL

Luz Wendy T. Noble, Reporter

THE SPIKE in coronavirus infections and the subsequent lockdown restrictions are “credit negative” to the Philippines’ rating, as these may hinder economic recovery and reverse the improvements in the labor market, according to Moody’s Investors Service.

While the current restrictions are “more forgiving” than previous tighter lockdowns, Moody’s noted these are in contrast to the relaxation of measures elsewhere in the region where infections are low or going down.

“The renewed measures will delay economic recovery, weigh on prospects for fiscal consolidation and exacerbate social risks,” Moody’s said in an issuer comment sent to BusinessWorld on Saturday in response to a query.

The debt watcher affirmed its Baa2 credit rating with a stable outlook for the Philippines in July last year, saying the country’s “strong fiscal position” will shield it from the effects of the health crisis. A stable outlook means that a country’s credit rating is likely to be maintained over the next 18 to 24 months.

As the number of coronavirus disease 2019 (COVID-19) infections continue to surge, Moody’s said some restrictions will likely be in effect in the Philippines until the second quarter, putting recovery at risk.

“Because 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,” the Moody’s report said.

Metro Manila and surrounding provinces Cavite, Laguna, Rizal, and Bulacan will revert to the strictest form of lockdown starting Monday to April 4, the Palace announced on Saturday evening. The move was done as healthcare facilities are again overwhelmed by the virus surge.

On Sunday, the Health department reported 9,475 new cases, with active cases now at 105,568.

The Philippine economy shrank by a record 9.5% in 2020, the worst among ASEAN economies as it implemented one of the strictest and longest lockdowns in the world.

Moody’s expects the gross domestic product (GDP) to grow by 7% this year, but cautioned the infection surge and the resulting restrictions threaten this outlook.

“Weaker economic growth diminishes prospects for fiscal and debt consolidation…[A] delayed recovery will have effects on labor markets that could exacerbate income inequality and poverty,” it said.

Last year, outstanding debt climbed 26.7% to P9.8 trillion from P7.731 trillion in 2019, based on data from the Bureau of the Treasury. This brought the debt-to-GDP ratio to 54.5%, increasing from the record low 39.6% in 2019.

The increase in debt stock showed how the pandemic effectively reversed the country’s progress in debt consolidation over the past decade.

Meanwhile, the annual unemployment rate was at a record high of 10.3% in 2020 from 5.1% in 2019, based on data from the Philippine Statistics Authority. This is equivalent to 4.5 million Filipinos who do not have jobs, but are looking for one.

Moody’s said that some improvements in the labor market and poverty incidence would likely be reversed by the new restriction measures.

Moreover, the ratings agency cautioned that the Corporate Recovery and Tax Incentives for Enterprises Act passed last week will also weigh on the fiscal position in the near-term due to lower tax revenues.

Republic Act No. 11534 will immediately bring down corporate income tax to 25% from 30% and will continue to slash this by a percentage point annually from 2023 to 2027. The law is expected to result in P251 billion in foregone revenue in the first two years or P1 trillion of tax relief for a decade.