Moody’s retains 6.5% Philippine growth forecast

MANILA, Philippines -  Debt watcher Moody’s Investors Services has retained the country’s economic growth forecast for this year despite the ongoing siege in Marawi City that paved the way for the declaration of martial law by President Duterte.

Christian de Guzman, vice president and senior credit officer at Moody’s, said in a commentary titled “Economic impact of martial law limited but could pose challenge to rule of law” the debt watcher has maintained its 2017 gross domestic product (GDP) growth forecast of 6.5 percent for the Philippines.

“We expect the impact on economic activity from the crisis in Marawi to be minimal and short-lived… We have maintained our forecast for real GDP growth in the Philippines at 6.5 percent for 2017,” he said.

Last May 23, President Duterte issued Proclamation No. 216 “Declaring a State of Martial law and Suspending the Privilege of Writ of Habeas Corpus in the Whole of Mindanao.”

De Guzman pointed out the ongoing siege and imposition of martial law would not materially impact the country’s robust near-term economic outlook.

“However, although unlikely to happen, potential challenges to the constitutional system of checks and balances could arrest or reverse the improvements in the rule of law over the past few years,” he said.

According to official statements, the military has regained control of most of Marawi as of May 30. As such, martial law, which is limited to 60 days by the Philippine constitution and after which congressional approval would be required for an extension, may not be needed for much longer, pending the full resolution of the situation.

Mindanao has about 24 percent of the Philippine population and accounted for 15 percent of GDP last year but contributed less than one percentage point to the country’s real GDP growth.

The economy grew 6.9 percent last year from 5.9 percent in 2015 as election related spending boosted private consumption and led to higher investments growth.

This year, economic managers penned a GDP expansion of 6.5 to 7.5 percent.

“Unless violence escalates markedy and/or martial law is extended and imposes significant constraints to the economy, the contribution of the region to national output will remain positive,” De Guzman said.

He explained the fighting has thus far been contained to Marawi, located in the Autonomous Region in Muslim Mindanao which itself accounts for only 0.7 percent of GDP.

However, beyond the immediate implications of the crisis in Marawi, President Duterte has publicly stated his willingness to bypass safeguards provided by the constitution against the arbitrary declaration of martial law, including the power of Congress and the Supreme Court to review, and even revoke, martial law.

The country’s chief executive has also previously threatened to invoke martial law to address other issues such as the eradication of drugs, which may not conform to the definition of “cases of invasion or rebellion” that is required under the constitution.

The Moody’s official said it is unlikely recent developments in Mindanao would lead to changes in economic and fiscal policies, which continue to be anchored by Duterte’s well-articulated 10-point socioeconomic development agenda.

Moody’s has placed the credit rating of the Philippines at Baa2 or a notch above minimum investment grade on a stable outlook.