Moody's affirms PH investment-grade credit rating

Moody's Investors Service has affirmed the Philippines' investment grade rating of “Baa2” with a stable outlook.

“The rating action is driven by Moody's view that the challenging global credit conditions will not derail the Philippines' ongoing recovery from the coronavirus pandemic, although the severity of the pandemic shock has led to an erosion in the rating agency's assessment of economic strength,” Moody's said in a report.

“Moreover, continued policy orthodoxy and commitment to reform amid political transition will help to assure gradual fiscal repair following the reversal of the strengthening of the government's fiscal and debt metrics resulting from the pandemic,” it said. 

Moody’s said the Philippines retained fundamental strengths on the stability of its banking system and the capacity to meet external debt repayments, notwithstanding cyclical pressures on the balance of payments and consequent exchange rate depreciation.

Moody's also affirmed the government's foreign currency senior unsecured shelf rating at (P)Baa2 and the senior unsecured ratings for the liabilities of the country's central bank, Bangko Sentral ng Pilipinas at Baa2. In Moody's view, the credit quality of the central bank is closely aligned with that of the government.

Moody's said the rebound in economic activity since mid-2021 has been strong and would be resilient to the current challenges posed by the turn in global credit conditions over the near-term. 

“The Philippine economy is not significantly exposed to Russia, although the European Union has historically been an important source of investment and demand for the country's goods and services exports,” it said.

It said the Philippines is less dependent on external demand as compared to Asia-Pacific peers given its relatively large domestic market, which in turn is further supported by stable remittance inflows from overseas Filipinos. 

Over the long term, Moody's continues to view the Philippines as characterized by higher economic growth relative to most Baa-rated peers, with favorable demographics balanced against a heightened susceptibility to environmental risks given the high incidence of climate-related shocks. 

“However, strict and prolonged pandemic containment restrictions contributed to a delayed recovery from the coronavirus shock, in turn leading to severe economic scarring – as represented by one of the largest cumulative economic output losses among rated sovereigns – and a deterioration in Moody's assessment of economic strength,” it said.