EDITORIAL - From stable to negative

Eight years after getting its first investment grade credit rating and “stable” outlook, the Philippines received a downgrade to “negative” from Fitch Ratings. The US credit watcher, which maintained the investment rating for the country, said the outlook downgrade was driven largely by the impact of the COVID pandemic.

If reforms are reversed or high fiscal deficits sustained due to departures from prudent macroeconomic policies, the country may also lose its investment grade rating. This will pose a bigger challenge to post-pandemic recovery.

The outlook downgrade tracked projections of economic analysts for the Philippines, warning that the country’s weak pandemic response pointed to one of the slowest recoveries in the Asia-Pacific region.With the country’s debt stock breaching a record P11 trillion, the debt-to-GDP ratio has ballooned. Some analysts have warned that post-pandemic, the country could once again become Asia’s basket case.

With the Fitch downgrade, similar moves might be announced for the Philippines by the other members of the Big Three credit rating agencies, Moody’s Investors Service and Standard & Poor’s.

The country’s economic managers have expressed confidence that the downgrade is temporary and the “stable” outlook could be regained within months as more businesses reopen and COVID vaccines arrives.

Fitch, however, has noted that as of end-June, less than three percent of the population had been fully vaccinated. It described as “ambitious” the government’s goal of vaccinating 70 percent of the eligible population and achieving herd immunity by the end of the year.

The outlook downgrade emphasizes the importance of proper pandemic response. Apart from the slow vaccine rollout, economic analysts had taken note of the surge beginning in March this year, which forced a return to crippling lockdowns, without corresponding improvements in the other aspects of pandemic response. The country, for example, has no nationally coordinated and reliable contact tracing network to speak of.

Health experts have warned that the more virulent Delta variant first detected in India could spread and trigger yet another surge, unless capacities are improved for isolation, testing and contact tracing. Experts are calling for sustained border controls amid the spread of variants.

The country received an investment grade credit rating and stable outlook for the first time in 2013 under the Aquino administration’s mantra, “good governance makes good economics.” Regaining the stable outlook calls for the same mantra, with emphasis on the pandemic response.