Moody’s says COVID-19 spike, new quarantine restrictions to delay PH recovery

MANILA - Moody’s Investors Service on Monday warned that the recent spike in COVID-19 cases, as well as the strict quarantine measures imposed to try to control it, will delay economic recovery.

The credit rating agency said the new measures will also “weigh on prospects for fiscal consolidation and exacerbate social risks.”

The government put the National Capital Region and four adjacent provinces on the strictest level of quarantine for a week starting Monday as new COVID-19 cases rose to over 9,000 per day. The NCR is the country’s most economically productive region, accounting for a third of the country’s gross domestic product. 

“Although current measures are more forgiving than the severe lockdowns imposed in 2020, they contrast with the easing of restrictions elsewhere in the region, where infection rates are low or falling,” Moody’s said. 

The debt watcher also noted that because the two-week restrictions are unlikely to restore infection rates to the better levels of earlier in the year, some of the restrictions will likely remain in effect well into the second quarter. 

Moody’s said this “threatens” its forecast for a 7 percent rebound in real GDP growth in 2021. 

Because the Philippines had the deepest contraction among large, developing ASEAN economies last year, its inability to contain the spread of coronavirus slows the return of aggregate output to its 2019 peak, Moody’s added. 

Nominal GDP in 2020 amounted to P18 trillion, which was 7.9 percent lower than P19.5 trillion in 2019.

The Philippines suffered its worst economic contraction since the end of World War 2 last year, as the government shut down economic activity and transportation in a bid to control the spread of COVID-19

Moody’s warned that the government's new measures could reverse recovery in the unemployment rate, which fell to 8.7 percent in the first quarter from a peak of 17.6 percent in the second quarter of last year. 

The new measures could also reverse gains against the poverty incidence, which fell to 16.7 percent in 2018 from 26.3 percent in 2009 as the economy rapidly expanded during those years.

“The government's 2021 budget calls for 10 percent growth in spending, assuming that economic recovery is firmly entrenched by the second half. The tightened restrictions on households and businesses have prompted calls for another stimulus package while the weak economy weighs on taxable income,” Moody’s said. 

Economic managers have said that they expect the GDP growth rate to return to positive territory in the second quarter as the economy reopened. 

• Philippine economy seen contracting again in Q1, return to positive growth in Q2

However, the recent spike in infections as well as the reimposition of strict measures to control the virus, have cast doubt on these forecasts. 

“At the same time, the recently passed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act may worsen near-term weakness in tax revenue,” Moody’s continued. 

The debt watcher said that while CREATE will expand the tax base over the long run, it may worsen near-term weakness in tax revenue. 

“In 2020, national government debt rose sharply to 54.5 percent of GDP from 39.6 percent the previous year, effectively reversing the progress on debt consolidation over the past decade,” the debt watcher added. 

The Philippine government's total debt hit a record P10.3 trillion at the end of January this year. 

In July last year, Moody’s affirmed the country’s Baa2 investment grade credit rating saying the improvement of the government’s fiscal position in recent years provides a buffer against a rise in public indebtedness due to shocks such as the COVID-19 pandemic.