Philippine economy on steady course (Part 2)

Sound macroeconomic management, improved growth prospects, and prudent spending are seen as plus factors in the government’s push for an investment grade credit rating.

This according to Business Quarterly, a periodic bulletin that highlights key macroeconomic and industrial developments produced by the Institute for Development and Econometric Analysis, Inc. (IDEA)

Credit watchers, however, are likely to closely monitor whether the government can successfully progress in its fiscal consolidation efforts primarily through credible sin tax reforms, incentives rationalization, and continued improvements in tax administration. Another factor would be if the growth story holds in the medium term, the Business Quarterly said.

It pointed out that most credit rating agencies are also expected to hold off ratings actions owing to persistent global uncertainties and weak economic prospects. Standard & Poor’s has already advised that it will not be making any positive credit rating changes in the next 12 to 18 months. It is worth noting, however, that the market already prices the Philippines at or near investment-grade levels and the actual attainment of investment grade status will only serve as a catch-up on the part of credit rating agencies that tend to focus on longer-term prospects.

Likewise, per same published report, barring a sharp uptick in global fuel and commodity prices, domestic inflation is seen to be stable and well-anchored. Hikes in utilities have driven year-on-year consumer price inflation towards the first seven months of 2012. With an outlook of an extended euro zone debt crisis, downward trend in world oil prices due primarily to the deceleration of the Chinese economy, and the appreciation of the peso, however, inflation is seen moderating to 3.46 percent in 2012. Base effects and robust prospect on demand, as well as the Monetary Board’s decision to take advantage of the tame inflation by easing further the policy rate, should drive inflation faster at 4.99 percent in 2013 and 4.28 in 2014. These are all well within the medium-term targets of the central bank.

Furthermore, developments in the government’s public-private partnerships (PPP) program have recently picked up with two projects awarded so far and scheduled to start construction in the next few months. These are the Daang Hari-SLEX Road Link and the PPP for School Infrastructure Project Phase I. Bidder due diligence is also ongoing for the LRT Line 1 Cavite Extension with the award set for early next year.

Meanwhile, two projects are up for bidding next: the NAIA Expressway and Modernization of the Philippine Orthopedic Center. More projects are expected to move forward next year. 

Overall, the 2013 elections may also contribute to higher economic activity. Apart from spending by candidates, government is also expected to hike public construction next year in a bid by current officials to boost the election chances. The event could also be a double-edged sword, however, depending on the manner of the conduct and eventual outcomes with much uncertainty in between. Election winners, particularly for legislative seats, will partly determine whether the administration can consolidate support for its programs and reforms into the second half of the President’s term, according to IDEA.

For comments, rejoinders and questions related to credit & collection, Mr. Ed F. Limtingco can be reached at [email protected].