Moody’s: Policies not enough to offset recession risks

MANILA, Philippines  — The policy measures taken by members of the Association of Southeast Asian Nations (ASEAN), including the Philippines, to cushion the impact of the coronavirus disease 2019 or COVID-19 are not enough to offset the rising recessionary or credit risks, according to Moody’s Investors Service.

In a report, Deborah Tan, assistant vice president at Moody’s, said the measures would reduce some of the negative effects of the pandemic.

“The various policy measures will mitigate credit-negative pressure on companies, banks and the broader economy, but weakness in trade, commodity prices and general sentiment will weigh on growth for all five economies,” Tan said.

Moody’s said economies of the Philippines, Malaysia, Indonesia, Vietnam and Thailand are highly integrated in regional manufacturing supply chains and are experiencing sharp declines in external trade flows, while ongoing travel restrictions are weighing on tourism-related revenue and export earnings.

At the same time, sluggish commodity prices are pressuring fiscal revenues for commodity exporters.

Financial market volatility triggered capital outflows in March and April, although lower dependence on foreign-currency denominated debt for most governments will to some extent shield them from currency depreciation risk.

“The fiscal costs of the support measures will be significant, with debt burdens only stabilizing from 2021 for most economies, although the ASEAN-5 countries had adequate buffers prior to the pandemic that provide them with the fiscal space to respond to the crisis,” Tan said.

“The growth slowdown in the region will be significant relative to previous crisis episodes, but will still be moderate compared to other regions. Nonetheless, the ASEAN-5 are negatively impacted by sharp falls in external trade flows, sluggish commodity prices that weigh on the fiscal revenues of commodity exporters, and financial market volatility that can trigger capital outflows,” it said.

Moody’s said policy measures for the financial sector have mostly focused on providing liquidity to banks to support new lending and through credit restructuring such as debt moratoriums. As moratoriums are lifted, banks’ problem loans will likely increase.

In the Philippines, measures largely focused on support for individuals, with P205 billion channeled toward a cash aid program for 18 million low-income households and more than P56 billion in social protections for vulnerable workers.

Other measures include credit guarantees for small businesses and loan restructuring for micro, small, and medium enterprises (MSMEs), while a corporate tax cut is being planned.