Significant slowdown in China could hurt PHL’s credit rating

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Reuters

A SIGNIFICANT SLOWDOWN in China’s economic growth due to novel coronavirus disease 2019 (COVID-19) outbreaks will likely hurt Asia-Paci’s sovereign ratingsIfc (APAC), including the Philippines, said Fitch Ratings.

In an “APAC Exposure to Slower China Growth” report, Fitch Ratings said more COVID-19-related economic shocks in China are likely to have “clear negative” economic effects.ffects for Asian countries since China is the biggest export market for most.

“Additional pandemic-related disruptions in China couldffect the economic, fiscal and external outlook for other APAC sovereign states and territories, with possible credit implications through channels such as trade, tourism and Ifnancing,” he said.

A slowdown in China will be the third major external shock for Asian economies, after the pandemic and the Russian-Ukrainian war.

“Successive shocks could further erode Ifscal and exacerbate credit risks in frontier markets, potentially eroding their political and institutional stability. Weaker economic growth prospects in the near term would weigh on APAC sovereign credit metrics. Post-pandemic Iffiscal consolidation could be delayed or reversed due to weaker growth or the use of fiscal stimulus to offset the external shock,” Fitch said.

China is the Philippines’ largest import partner, accounting for 22.7% of total imports in 2021. About 15.5% of Philippine exports went to China in 2021.

However, Fitch said the Philippines is less exposed to these shocks compared to its APAC neighbors because most are more dependent on Chinese imports.

Weaker growth in China could affect countries such as the Philippines, Hong Kong, Thailand, Sri Lanka and Vietnam, whose tourism sectors depend heavily on Chinese tourists, he added.

The Philippines is also less dependent on bilateral loans from China than other APAC countries.

In the event that China’s growth is slower than current forecasts, Fitch said slower growth and weaker global investor sentiment will weigh on other Asia-Pacific nations.Ifc sovereign ratings.

” TheffThe effects across the APAC region may be largely transitory, but this additional post-pandemic shock and the Russian-Ukrainian war may increase the risk of economic scarring that could weigh on medium-term growth prospects,” Fitch said.

“Ratings sensitive to this risk, with relatively limited room for maneuver, such as that of the Philippines, could face downward pressure,” he added.

Fitch Ratings maintained the country’s “BBB” rating in February, as well as the “negative” outlook, because it fluncertainties related to the country’s medium-term growth and obstacles to debt reduction. A negative outlook means a downgrade is possible within the next 12-18 months.

The Philippines has maintained a BBB rating since December 2017, which is one notch above the minimum investment grade.

The Philippines’ debt-to-gross domestic product (GDP) ratio stood at 63.5% at the end of March, above the 60% limit prescribed by multinational lenders. This is a result of the country’s aggressive borrowing to fund its pandemic response in 2020.

The government aims to reduce the debt-to-GDP ratio to 61.8% by the end of the year and is expected to decline steadily to 61.3% by next year down to 52.5% d by 2028. — DGCRobles

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