ING Bank Manila senior economist Nicholas Mapa
MANILA – An economist has suggested the need for the government to reconsider its strategy to address the rising debt amid pandemic-related spending to prevent further adjustments on its credit rating outlooks.
This, after Fitch Ratings recently changed from stable to negative its outlook on the country’s investment-grade rating, which was affirmed at BBB.
Nicholas Mapa, ING Bank Manila senior economist, said debt raters are now likely looking at the possible scarring effects of the pandemic on economic activity “and how weak growth might affect the overall fiscal health of the country.”
“From this prognosis, it is quite clear that debt watchers are now increasingly concerned about the medium-term growth prospects for the Philippines, suggesting that the so-called ‘solid fundamentals’ are now being questioned. With only base effects providing momentum for 2021 GDP (gross domestic product) growth, perhaps the once robust consumption crazy, investment renaissance economy is now only something that was ‘so 2019’,” he said.
Economic managers have ensured that the budget deficit level will not swell way above the 60 percent of GDP threshold so debt levels will remain sustainable.
Mapa attributed this to economic managers’ decision “to control the deficit.”
“Authorities argue that the perceived austerity was carried out to ensure fiscal sustainability and ensure we had ‘enough bullets to fight’ what was projected to be a drawn-out war,” he said.
But Mapa said this has resulted in GDP growth crashing by 9.5 percent in 2020, the deficit-to-GDP ratio rising sharply to 9 percent as of the first quarter of 2021, and the overall debt-to-GDP ratio moving past the critical 60-percent threshold “carefully watched” by ratings agencies.
“Authorities may need to revisit their current debt-to GDP alleviation strategy as credit downgrades, something they so meticulously avoided, loom,” he said. “Perhaps, a revised gameplan to chase faster growth can be considered.”
He added faster growth generates revenue streams and jobs. (PNA)
