By Bianca Cuaresma, February 26 2019; Business Mirror
https://businessmirror.com.ph/2019/02/26/moodys-upbeat-on-phl-after-enactment-of-economic-laws/
Image Credit to Wall Street Journal
THE laws recently enacted by the government, including the rice trade liberalization law and the measure amending the Bangko Sentral ng Pilipinas (BSP) charter, will be positive for the country’s economy, an international credit watcher said.
In a research note published on Monday, Moody’s Investors Service lauded President Duterte for approving a number of economic laws, saying these measures are set to “enhance the macroeconomic and financial stability” of the Philippines.
On February 15, Duterte signed a number of bills into law, which include the “Act Providing for Reasonable Rates for Political Advertisements”; Republic Act (RA) 11211, or the New Central Bank Act; the Social Security System (SSS) Rationalization Act; and RA 11203, or the rice trade liberalization law.
Moody’s said two of these new laws—the rice trade liberalization law and RA 11211—are “credit positive” for the country’s economy.
Moody’s currently rates the Philippines at Baa2 with a stable outlook. “The rice tariffication scheme, effective March 5, eliminates quantitative restrictions on rice imports, replacing them with tariffs. We expect the expected increase in the volume of rice imports will diminish the price volatility of rice, helping to insulate Filipino households’ consumption to adverse agricultural shocks,” Moody’s said in its research note.
“The amendment to the BSP’s charter expands its supervisory oversight over nonbank financial institutions such as money service businesses, credit granting businesses and payment system operators, which will enhance financial stability given the linkages between the banking system and these entities,” it added.
Laudable laws
MOODY’S said RA 11203 will help alleviate local supply-demand imbalances by eliminating quantitative restrictions on rice imports, as it will now be subject to tariffs.
In 2018, weather-related supply disruptions led to a decline in the growth of rice production, pushing upward domestic rice prices. As rice accounts for nearly 10 percent of the entire consumer price index (CPI) basket, higher rice prices contributed to the acceleration in overall inflation. Inflation in 2018 veered away from the BSP’s target of 2 to 4 percent for the year. The 2018 growth of consumer prices averaged at 5.2 percent, with the peak hitting 6.7 percent in September and October last year before going down to 4.4 percent in January.
The acceleration of inflation during the period prompted the BSP to increase its rates to a total of 175 basis points. It also sparked nonmonetary policy responses from Duterte’s economic team to give the country a respite from price hikes.
The BSP estimated that the implementation of RA 11203 will slash inflation by 0.6 percentage points in 2019 and 0.3 to 0.4 percentage points in 2020.
Moody’s also viewed favorably the enactment of the New Central Bank Act, particularly its salient provisions, such as allowing the BSP to issue its own debt securities. The international credit watcher also welcomed the official removal of money supply and credit levels as a basis to determine monetary policy; the prohibition of any injunction or restraining order on the BSP, except by the Philippines’s two highest courts; an increase in BSP’s capitalization to P200 billion from P50 billion; and the exemption of the bulk of its activities from taxation.
“The issuance of its own debt will enhance the BSP’s ability to better calibrate liquidity condition through open market operations, allowing it to rely less on its deposit facilities and reserve requirements, which at 18 percent, is one of the highest globally,” Moody’s said.