S&P’s lower Philippine outlook not a surprise–Nomura
The decision of S&P Global Ratings to downgrade the Philippine sovereign’s outlook to “stable” came as no surprise, as the bar for a credit rating upgrade remains high amid persistent headwinds both abroad and at home, economists at Nomura Global Market Research said.
In a note to clients, Nomura said the country’s near-term growth outlook had already weakened following the fallout from the flood control corruption scandal and is now further complicated by the energy shock from the Middle East war, leaving the Philippines exposed given its reliance on imported oil.
“The decision is not surprising, though the timing was earlier-than-expected as the next review cycle is still months away. Nonetheless, we have argued that the ‘positive’ outlook is at odds with large twin deficits and that the bar is high for a rating upgrade,” Nomura said.
S&P Global Ratings said risks to the trajectory of the country’s external and fiscal metrics are unlikely to improve significantly over the next two to three years, underscoring concerns over the Philippines’ twin deficits—defined as simultaneous budget and current account shortfalls.
S&P also lowered its outlook on state lender Development Bank of the Philippines (DBP) to the same level as the sovereign, citing its close link to the government and critical role in supporting the state’s development agenda.
“DBP is almost certain to receive support from the government of the Philippines. As one of the two national government-owned universal banks, DBP plays a critical role in implementing the government’s medium-term development strategy,” S&P said.
Still, Nomura believes the Philippines will not be further downgraded to a “negative” outlook over the next few months, barring new shocks.
