Moody's sees Philippine growth above 6 percent

Trash lies in a gutter as customers shop at Quiapo Market in Manila, the Philippines, on Thursday, Feb. 2, 2017. (Bloomberg/Taylor Weidman)

Moody’s Investors Service forecast that Philippine economic growth will exceed 6 percent until next year, and said the conflict in the south and a deadly drug war pose a rising risk but is unlikely to derail the economy.

Gross domestic product will expand 6.5 percent this year and 6.8 percent in 2018, the rating company said in a statement on Friday. It cited the government’s focus on infrastructure, buoyant private sector investment and the recovery in external demand.

Moody’s also made the following comments on infrastructure, tax reform and fiscal deficit:

In the absence of a significant boost to government revenue from the tax reform, the government is likely to pare back its plan to aggressively increase infrastructure spending Fiscal deficits are widening but they haven’t interrupted debt consolidation; finances remain weak compared with similarly rated peers. The risk of an expansion of military rule in the south “could undermine both foreign and domestic business confidence and disrupt economic activity in other parts of the country” Martial law and the unchecked expansion of presidential authority that the government claims could address terrorism, the war on drugs and traffic congestion in the capital could weaken constitutional checks and undermine buoyant private sector sentiment Capacity constraints are emerging, including labour shortages in certain sectors that could lead to faster inflation

Moody’s affirmation of its strong growth outlook underscores the success of President Rodrigo Duterte in retaining confidence in the economy. Philippine stocks surged to a record on Thursday, and the Philippines is now Morgan Stanley’s top choice in Southeast Asia.

The economy is far from overheating and there has been no over-extension of credit, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said at a briefing in Manila on Friday. The central bank is reviewing balance of payments and current account projections for the year, he said.

Moody’s comments on political risk echo concerns raised by some business groups. The government must ensure that law enforcement and military operations comply with international human rights standards, the joint foreign business chambers said on Thursday. – Bloomberg