Global debt watcher Moody’s Investors Service said Wednesday it expects the Philippine economy to sustain its robust growth, but warned that a nationwide imposition of martial rule, which is currently in effect over Mindanao, will undermine expansion.
Moody’s vice president and senior credit officer Christian de Guzman said in a news briefing in Makati City that the Marawi conflict in Mindanao would not have any significant impact on gross domestic product growth.
“We have a higher assessment of political risks such as the Marawi conflict and the imposition of martial law in Mindanao. But so far, the increase in political risks have not undermined the reform agenda of the government,” de Guzman said.
He said even if the conflict dragged longer, it would not have a big effect on economic growth because Marawi, and even the Autonomous Region of Muslim Mindanao, contributed less than 1 percent to GDP.
“We see that the declaration of martial law nationwide will undermine economic growth, although we do not see this happening because it will have an impact on investors’ confidence,” de Guzman said.
He said the Philippine economy would expand 6.5 this year, before accelerating further by 6.8 percent in 2018. First-quarter growth was registered at 6.4 percent, slower than 6.8 percent a year ago and 6.6 percent in the fourth quarter.
The Duterte administration put the entire Mindanao island under martial law in May after heavy fighting broke out in Marawi between government troops and extremist Muslims believed to be supporters of Islamic State of Iraq and Syria. The declaration of martial law was aimed to contain the spread of violence outside the city.
De Guzman said the Philippine economy would continue outperforming similarly-rated peers as domestic demand remained robust and provided a buffer against external shocks.
“The Philippines’ growth is stronger than its Baa2 peers… We expect continued outperformance versus similarly-rated peers,” de Guzman said.
Moody’s maintained its Baa2 investment grade rating and stable outlook for the Philippines. It said the affirmation of the rating balanced positive and negative factors.
Moody’s said on the positive side, it expected the country’s economic performance to remain strong while debt consolidation would continue and foster further convergence of key fiscal metrics versus corresponding peer medians.
The Philippine economy is seen to grow between 6.5 percent and 7.5 percent this year, anchored on higher fiscal spending, robust domestic demand and investments. Last year, GDP grew 6.9 percent, near the upper limit of the target range of 6 percent to 7 percent and one of the fastest in the region.
Moody’s said the Philippines’ real GDP growth averaged 6.4 percent per year between 2014 and 2016, more than twice the corresponding median for Baa2-rated countries. It expects growth to be sustained above 6 percent per year over the next two years, driven largely by the private sector.
“Over the long run, the Philippines stands to benefit from a demographic dividend. A young and growing population imparts stability to private consumption growth,” it said.