Moody’s warns of risks to Philippines’ investment grade

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Moody'sRating agency Moody’s Investors Service has warned that the ongoing pork barrel issue and the relief response to typhoon Haiyan pose political risks that may cause the Philippines to lose recently-awarded investment grade ratings, the Philippine Star reported.

“Domestic political event risks are considered low and reflect the continued popularity of the Aquino administration, as well as developments related to the long-running Islamist insurgency in the southern region of Mindanao,” Moody’s said in a recent credit analysis.

“However, the government’s track record of policy performance over the past three years has been facilitated by a favorable political backdrop. This, in turn, could be threatened by ongoing deliberations related to the pork barrel scam or perceptions of an inadequate response to typhoon Haiyan,” the debt watcher continued.

The policy reforms undertaken by the Aquino government has helped propel the country in achieving robust economic growth. These have also prompted various debt watchers, including Moody’s, to upgrade the Philippines’ rating to investment grade this year.

“The mid-term Senate and House elections in May 2013 helped strengthen the Aquino administration’s mandate, and ostensibly improving the prospects for reform,” Moody’s noted.

“There was a risk that the President’s political mandate following these elections would be diminished because of negative or unclear results. Instead, his mandate was cemented, as his coalition won nine of the 12 available Senate seats, while retaining its solid majority in the House,” the debt watcher added.

Moody’s recounted that past administrations have seen “stalled reform momentum” after three years of being in office amid declining popularity. The credit rater continued that previous administrations were plagued by coups and calls for impeachment that hindered the passage of other reforms needed by the country.

At the same time, Moody’s stressed the perception of a poor response from the government following the world’s strongest typhoon in recorded history may be a drag on the administration’s current popularity.

“The large humanitarian and economic toll exacted by the typhoon in November has underscored the Philippines’ fiscal and organisational constraints. The inability to coordinate an effective and rapid relief response for disaster-stricken areas could become a political liability for the Aquino administration,” Moody’s said.

Moody’s in October upgraded the country’s junk rating to investment grade. The Philippines was awarded a Baa3 with a positive outlook, which means another rating upgrade may be in the horizon for the next 12 to 18 months.

This was the third investment grade rating the country got from a major debt watcher. Fitch Ratings was the first to give the country its long-awaited investment grade rating in March, followed by Standard & Poor’s in May.

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Reading Time: 2 minutes

Rating agency Moody’s Investors Service has warned that the ongoing pork barrel issue and the relief response to typhoon Haiyan pose political risks that may cause the Philippines to lose recently-awarded investment grade ratings, the Philippine Star reported.

Reading Time: 2 minutes

Moody'sRating agency Moody’s Investors Service has warned that the ongoing pork barrel issue and the relief response to typhoon Haiyan pose political risks that may cause the Philippines to lose recently-awarded investment grade ratings, the Philippine Star reported.

“Domestic political event risks are considered low and reflect the continued popularity of the Aquino administration, as well as developments related to the long-running Islamist insurgency in the southern region of Mindanao,” Moody’s said in a recent credit analysis.

“However, the government’s track record of policy performance over the past three years has been facilitated by a favorable political backdrop. This, in turn, could be threatened by ongoing deliberations related to the pork barrel scam or perceptions of an inadequate response to typhoon Haiyan,” the debt watcher continued.

The policy reforms undertaken by the Aquino government has helped propel the country in achieving robust economic growth. These have also prompted various debt watchers, including Moody’s, to upgrade the Philippines’ rating to investment grade this year.

“The mid-term Senate and House elections in May 2013 helped strengthen the Aquino administration’s mandate, and ostensibly improving the prospects for reform,” Moody’s noted.

“There was a risk that the President’s political mandate following these elections would be diminished because of negative or unclear results. Instead, his mandate was cemented, as his coalition won nine of the 12 available Senate seats, while retaining its solid majority in the House,” the debt watcher added.

Moody’s recounted that past administrations have seen “stalled reform momentum” after three years of being in office amid declining popularity. The credit rater continued that previous administrations were plagued by coups and calls for impeachment that hindered the passage of other reforms needed by the country.

At the same time, Moody’s stressed the perception of a poor response from the government following the world’s strongest typhoon in recorded history may be a drag on the administration’s current popularity.

“The large humanitarian and economic toll exacted by the typhoon in November has underscored the Philippines’ fiscal and organisational constraints. The inability to coordinate an effective and rapid relief response for disaster-stricken areas could become a political liability for the Aquino administration,” Moody’s said.

Moody’s in October upgraded the country’s junk rating to investment grade. The Philippines was awarded a Baa3 with a positive outlook, which means another rating upgrade may be in the horizon for the next 12 to 18 months.

This was the third investment grade rating the country got from a major debt watcher. Fitch Ratings was the first to give the country its long-awaited investment grade rating in March, followed by Standard & Poor’s in May.

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