MANILA, Philippines - Moodyâ€™s Investors Service has warned that the ongoing pork barrel issue and the relief response to Super Typhoon Yolanda pose political risks that may cause the Philippines to lose recently-awarded investment grade ratings.
â€œDomestic 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,â€ Moodyâ€™s said in a recent credit analysis.
â€œHowever, the governmentâ€™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 (Yolanda),â€ 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 Moodyâ€™s, to upgrade the Philippinesâ€™ rating to investment grade this year.
â€œThe mid-term Senate and House elections in May 2013 helped strengthen the Aquino administrationâ€™s mandate, and ostensibly improving the prospects for reform,â€ Moodyâ€™s noted.
â€œThere was a risk that the Presidentâ€™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,â€ the debt watcher added.
Moodyâ€™s recounted that past administrations have seen â€œstalled reform momentumâ€ 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.
â€œMore recently, however, political discourse has been dominated by the alleged misuse of the Priority Development Assistance Fund (PDAF) or â€œpork barrel.â€ The suspected participation of politicians allied to the President could undermine his emphasis on good governance and erode legislative support for his reform program,â€ Moodyâ€™s noted.
â€œNevertheless, the debate is likely to result in increased scrutiny of discretionary spending by politicians, reinforcing the trend towards greater transparency and accountability with regards to fiscal management.â€
At the same time, Moodyâ€™s stressed the perception of a poor response from the government following the worldâ€™s strongest typhoon in recorded history may be a drag on the administrationâ€™s current popularity.
â€œThe large humanitarian and economic toll exacted by Typhoon (Yolanda) in November has underscored the Philippinesâ€™ fiscal and organizational constraints. The inability to coordinate an effective and rapid relief response for disaster-stricken areas could become a political liability for the Aquino administration,â€ Moodyâ€™s said.
Moodyâ€™s said the wrath of Yolanda may pull down the countryâ€™s fourth quarter economic growth but rebuilding efforts will prop up expansion in the first quarter of next year. It further stressed the â€œmost importantâ€ regions in terms of contribution to the countryâ€™s gross domestic product--Region IV-A (Calabarzon) and National Capital Region--were unaffected by the calamity.
â€œWe do not expect (Yolanda) to materially affect merchandise or services exports, but imports of building material and other inputs for reconstruction could weigh on the trade deficit. Nevertheless, remittance inflows-along with financial assistance from official and private sources-are expected to spike upwards and sustain the surpluses in both the current account and overall balance of payments,â€ Moodyâ€™s said.
Moodyâ€™s in October upgraded the countryâ€™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 & Poorâ€™s in May.