Philippine economy least vulnerable to external shocks, says S&P

MANILA, Philippines - Standard and Poor’s (S&P) has tagged the Philippines as the least vulnerable emerging market economy that would be affected by adverse global trends brought about by the impending interest rate hike in the US and the economic slowdown in China.

In a report, S&P said the Philippines, Mexico, and Poland are the countries that appear to be least at risk from the combined effect of the tightening global liquidity, financial deleveraging, and a Chinese slowdown.

“The least-vulnerable sovereigns in our ranking are the Philippines, Poland, and Mexico, followed by Pakistan and Hungary,” the report said.

S&P assessed all 22 emerging market economies including the Philippines. It ranked the countries by using a simple average of its ranking of the three measures of risks.

The Philippines emerged as the least vulnerable after ranking last or 22nd in the overall risk assessment ranking, while Poland was ranked 21st and Mexico 20th.

S&P said these countries have low direct economic ties to China, low risk of domestic financial leverage, and are only moderately vulnerable to higher global interest rates.

The rating agency said higher global interest rates arising from the impending normalization of the US Federal Reserve could pose problems for countries that have accumulated high external debt.

S&P said the Philippines would be the least affected country among emerging markets in case of  a US Fed interest rate liftoff that could lead to an accelerated redirection of capital to advanced economies from emerging markets.

China, Russia, Brazil, and Peru are also least vulnerable from a spike in global interest rates because of their comparatively low external balance sheets and financing needs.

Hungary, Pakistan, South Africa, and the Philippines also emerged as the least vulnerable from deleverage risk arising from the unwinding of excessive domestic credit that has built up in recent years in the banking system and in asset prices.

In terms of the impact of the economic slowdown in China, the Philippines stood in the middle, the report said, adding that a marked slowdown in China could hurt its trading partners around the world.

India emerged as the least vulnerable country from the economic slowdown in China followed by Turkey, Morocco, and Lebanon.

 “We believe that over the past two decades the ratings on emerging market sovereigns have become more resilient to stress, in part because they have made significant progress in developing their domestic capital markets, increasing their external reserves, and making their monetary policy frameworks more flexible,” S&P said.

Based on the overall vulnerability ranking, Venezuela emerged as the most vulnerable to the adverse global trends followed by Argentina, Turkey, Columbia, and Peru.