Country seen resilient; outlook positive


STRONG FUNDAMENTALS and improved public finances will continue to buoy the Philippines against headwinds affecting the entire region, Moody’s Investors Service said.

The debt watcher, in its Asia-Pacific Sovereign Outlook, noted that economies faced risks that could affect growth prospects moving forward.

“Asia-Pacific countries will broadly be resilient to the reduction of stimulus by the US Federal Reserve, but they are nonetheless likely to face headwinds to growth as China’s economy cools and recoveries in the US and EU remain relatively muted,” Moody’s said in the report, which was released yesterday.

It noted that the region’s economies had steadily improved their respective credit standings, which could help cushion against the effects of challenges. This means, however, that investors looking “will increasingly focus on countries’ economic fundamentals.”

The debt watcher said that 19 out of 22 of its ratings for Asia-Pacific sovereigns had stable outlooks — indicating “broad expectation of steady credit conditions.”

“Our rating actions since October 2013 — notably upgrades in the Philippines (Baa3 positive) and Macao (Aa2 stable) — have reflected robust economic growth and strengthening fiscal positions, as well as other country-specific factors,” it said.

“Malaysia (A3 positive) and the Philippines are on positive outlook, reflecting their robust economic performance and prospects for reform efforts there to intensify,” it added.

With respect to the Fed’s ongoing normalization of its accommodative policy, Moody’s noted that Asian countries had, in general, low vulnerabilities amid a potential tightening in financial conditions given their external payments positions and government debt profiles.

“Going forward, most economies in the region will be resilient to the reduced influx of capital, in large part thanks to their low share of foreign currency debt and ample fiscal buffers that give them scope to apply stimulus measures if necessary.”

The debt watcher said that based on its analysis, China and South Korea were the countries least sensitive to external risks from the Fed’s move.

It noted that Indonesia and the Philippines were the “most susceptible to currency depreciation” in the event of capital reversal “owing to their sizeable shares of government debt denominated in foreign exchange.”

“But whereas the Philippines has strong capacity to fund itself onshore in the event of an interruption to international inflows, a large amount of Indonesia’s debts are held by non-residents and it is therefore very reliant on external funding,” Moody’s added.

Closer to home, meanwhile, the slowdown in China has again been tagged as a risk for countries in the region.

“Industrialized nations have strengthened over recent months. But China … is facing new economic challenges as authorities attempt to curb credit growth and orchestrate a shift to a less investment-intensive growth model,” the debt watcher said.

“The policy framework will have a bias towards stability rather than stimulus, and a consequence will likely be a weaker rate of economic expansion in the process, which will weigh on intra-Asian trade … [and] dampen the performance of its Asian neighbors.”

This, along with the relatively modest pickups in US and EU growth, will also pose challenges to the ability of Asian countries to maintain their relatively strong economic performance.

“The pickup in major industrialized economies should be supportive for Asia as a whole, although less so than it might have been in the past, given the region’s shrinking reliance on export demand from the US and Europe,” Moody’s said.

“This means national authorities are seeking structural reform measures to boost long-term growth prospects and reduce internal risks to growth.”

In some countries, it added, there has been a substantial buildup of debt among public sector enterprises and households, which constrain economies’ ability to grow and could in an extreme scenario necessitate official intervention, putting a burden on government balance sheets.

While upcoming and ongoing elections in some countries provide the potential for new administrations to capitalize on fresh mandates to implement structural reforms, political turmoil in some economies — most notably Thailand — also raise the risk of a protracted period of weak growth, Moody’s noted.


By Bettina Faye V. Roc, Senior Reporter

Business World  I  May 1, 2014;-outlook-positive&id=86875