STATEMENT: Security and Political Developments Pose Limited Immediate Credit ImpactChristian de Guzman, Senior Credit Officer, Sovereign Risk Group, Moody’s Investors Service Singapore Pte. Ltd.
** Below (or attached) is a full version of our Issuer Comment published on 7 Sep 2016.
On 2 September, a bomb detonated in a night market in Davao City, the largest municipality in the southern region of Mindanao in the Philippines (Baa2 stable), prompting President Rodrigo Duterte to declare a “state of lawlessness” nationwide the following day. The declaration allows for heightened security measures, including the stepped-up deployment of soldiers and policemen in key areas.
The near-term sovereign credit impact of these developments is limited as we do not expect them to change economic and fiscal policies or outcomes. However, if recent events lead to prolonged uncertainty around security or economic policy, such a development would eventually dampen business confidence and, consequently, economic outcomes.
The Philippines economy grew by an average of 6.9% year-on-year through the first half of 2016, a stronger performance than similarly rated peers. We do not expect recent events to meaningfully derail this economic momentum.
While Mindanao has about 24% of the Philippine population, it only accounted for 14.8% of GDP in 2015 and contributed 0.8 percentage point to the country’s real GDP growth of 5.9% in the same year (see Exhibit 1). At this stage and, as long as the interventions under the state of lawlessness do not affect businesses nationwide, we assume that investment decisions will not be materially affected.