INTERNATIONAL credit watcher Moody’s Investor Service retained its “stable” outlook of the Philippines’s investment grade rating, despite assigning a “moderately negative” ESG credit impact score for the country.
In a research assessment published on Thursday, Moody’s Investor Service released an update on its credit opinion on the Philippines following their assessment of the country’s ESG credit impact scores.
ESG stands for environmental, social and governance. In December 2020, Moody’s announced that it has updated its methodology for assessing environmental, social and governance risks of a sovereign.
Under this framework, Moody’s, on Thursday, said the Philippines’s ESG Credit Impact Score is moderately negative (CIS-3), reflecting high exposure to environmental risks and social risks, contained by institutional and economic resilience.
Broken down, both environmental and social risks profiles are rated “highly negative” while the governance risk is rated “neutral to low.”
“The Philippines’s overall issuer profile score is highly negative [E-4], given the high incidence of climate-related shocks, including typhoons and extreme precipitation leading to flooding. In addition, the relatively large, albeit declining, share of the labor force employed by the agricultural sector heightens the country’s susceptibility to heat stress given the periodic episodes of drought,” Moody’s said.
The credit watcher also said the inadequate and intermittent access to clean water and issues of waste and pollution add to the Philippines’s exposure to environmental risks.
Meanwhile, in terms of the social aspect, Moody’s said the high levels of poverty and low overall levels of wealth are risks to the country’s risk profile.
“In the context of rapid economic growth, income inequality remains high while development gaps persist between large urban centers and rural areas. Labor markets feature a high share of informal employment, which is partially mitigated by household income support via remittances,” Moody’s said.
“Despite traction on socioeconomic reform, inadequate provision of health care and lack of sufficient access to basic services and housing contribute to social risks,” it added.
For governance, Moody’s said the Philippines is broadly in line with other sovereigns and that the country’s governance does not pose specific risks.
“Strong macroeconomic and fiscal policy effectiveness compensates for comparatively weak political and legal governance, while providing some capacity to respond to environmental and social risks,” Moody’s said.
As such, the credit watcher said the Philippines remains at Baa2 with a stable outlook.
“The stable outlook reflects the view that the recovery from the acute shock posed by the coronavirus pandemic will restore rapid economic growth relative to peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics,” Moody’s said.