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A view of residential condominium buildings in Mandaluyong City, Metro Manila, Philippines, Aug. 22, 2016. — REUTERS
CREDIT RATING agencies will keep a close eye on how the incoming Marcos administration will manage the country’s mounting debt in assessing the Philippines’ sovereign rating.
Moody’s Investors Service is also concerned over debt affordability as it reflects a sovereign’s fiscal flexibility, said Christian de Guzman, senior vice-president at Moody’s sovereign risk group.
Debt affordability is the ratio of annual interest payments required to maintain a government’s debt to its annual tax revenues.
“Indeed, while there has been a large increase in government debt that has in essence reversed the progress in debt reduction that was made in the decade prior to the pandemic, we have not seen a similarly large deterioration in debt affordability for the Philippines,” Mr. De Guzman said in an e-mail.
The National Government’s outstanding debt rose to a record-high P12.68 trillion as of end-March, according to the Bureau of the Treasury (BTr).
“For comparison, the last time the Philippine government had seen debt levels similar to that today, which was in the early to mid-2000s, the interest payments to revenue ratio was several magnitudes worse than what we are seeing today,” Mr. De Guzman said.
The relatively stable interest rates, as well as continued tax reforms, have helped improve debt affordability for the Philippines, he said.
Moody’s last affirmed its “Baa2” credit rating with a “stable” outlook for the Philippines in July 2020.
“As factors that would prompt a downgrade of the Philippines’ sovereign rating, we have previously cited a greater deterioration in fiscal and government debt metrics relative to peers or an erosion of the country’s external payments position that threatens liquidity conditions,” Mr. De Guzman said.
Any reversal of economic reforms, “substantial deterioration in institutions and governance strength, with signs of erosion in the quality of legislative and executive institutions,” would also be negative, he added.
The National Government’s debt-to-gross domestic product (GDP) ratio hit 63.5% as of end-March, the highest in 12 years. It also exceeded the 60% threshold considered manageable by multilateral lenders for emerging economies.
“Ultimately, the rating trajectory will be informed by the incoming administration’s ability to stabilize and eventually reverse the deterioration in debt levels over the medium term,” Mr. De Guzman said.
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