Moody’s Investors Service changed yesteday its ratings outlook to negative, from stable, on the Philippines’ Ba1 long-term foreign currency country ceiling for bonds as well as on the Ba2 long-term foreign currency ceiling for bank deposits.
Standard and Poor’s last week downgraded its outlook on the Philippines’ long-term ratings to negative, from stable.
Moody’s said in a statement that "unfolding political developments associated with a movement for impeachment proceedings against President Estrada could impair policy making and hamper the ability or willingness of the authorities to defend the country’s external payments position."
"The ratings downgrades all point to higher borrowing cost for the country," said Equitable PCI Bank analyst Edison Yap. "Higher interest rates automatically translate to less value in equities."
The country is faced with a political crisis resulting from allegations that the President took hundreds of millions of pesos in payoffs from illegal gambling syndicates.
The opposition has filed a motion in the House of Representatives to impeach Mr. Estrada while pressure is mounting on the leader to resign.
Mr. Estrada has rejected the charges and said he would not quit. The peso has been plunging to a new record low every day this week against the dollar. The foreign exchange turmoil may overwhelm the economy, analysts say.
Moody’s said a period of political uncertainty might adversely affect confidence over the long-term, not just of foreign creditors and investors but also of Filipino residents.
The rating agency noted that there are signs that pressures are intensifying on the balance of payments which, if not stemmed, could significantly weaken the Philippine external liquidity position.
The firm said these incipient pressures are compounded by the deterioration in domestic and external economic conditions that are posing added policy challenges and which may dim economic prospects. These include, the rating agency said, rising oil prices, slower export growth, a ballooning budget deficit, mounting upward pressure on interest rates, and downward pressure on the peso.
Confidence specific factors that have been evident earlier this year and which may be intensifying include: accelerating portfolio and short-term capital account outflows, dwindling foreign direct investment inflows, and declining remittances of overseas contract workers. – Marianne Go