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Structural reforms to prevent liquidity problem contagion in EMs

By Joann Villanueva

October 11, 2018, 8:00 pm

MANILA -- Improved fundamentals is expected to cushion the impact of tightening global liquidity in emerging markets (EMs), including the Philippines.

In a report, Standard & Poor’s Global Ratings discounted the possible spread of potential liquidity problems in most EMs as a result of interest rates normalization around the world. "We do not think that credit problems will spread to the emerging market asset class as a whole," it said.

The report noted that majority of the EMs have implemented reforms in recent decades and this move enabled the countries to strengthen their creditworthiness, improve their economic structure and reduced their vulnerability to a potential global liquidity tightening.

It said the debt rater’s average rating for EMs fall within the investment grade category and most have stable outlooks. “We believe that the level of credit risk among EM sovereigns is quite diverse, as reflected in our differing ratings,” it said.

For the Philippines, which has a “BBB” rating with positive outlook, the credit rater said per capita GDP (gross domestic product) “has more than doubled” because of the robust expansion of the service sector.

The country’s foreign currency-denominated debt is likely surpassed by external assets by nearly 10 percent of GDP, it said.

This level, the report said, is a far-cry from the external debt of about 26 percent of GDP in 1998. “This steady improvement reflects, among other things, the strength of steady inbound remittances from Filipinos working abroad, which have improved both the current account balance and GDP growth, contributing to a rising credit rating (which went from 'BB-' in 2008 to 'BBB' today),” it said.

Remittances from Overseas Filipino Investments (OFWs) accounts for about 10 percent of domestic growth, to date.

The Bangko Sentral ng Pilipinas (BSP) forecasts a four percent remittance growth this year, which is lower than in past years, but which monetary officials explained is a normal phase since remittance growth is already maturing. (PNA)

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