Fitch flags public protest impact on fiscal consolidation efforts

Manila, Philippines – Concerns over the way taxpayers’ money had been mishandled, and possibly graft extending beyond public works, could set back efforts by the Marcos government to fix its fiscal house in order, global debt watcher Fitch Ratings said.

In its latest commentary released on Monday, Oct. 27, which is not tantamount to a review of the country’s debt scores, Fitch has flagged increasing risks to fiscal consolidation efforts by nations faced with political unrest, including the Philippines.

“We think that recent violent protests in some countries, such as Nepal, Indonesia and the Philippines, could add to spending pressure,” the New York-based ratings agency said.

Government spending was meant to lift an economy that President Ferdinand Marcos, Jr.’s economic team expects to slow down amid higher Trump tariffs, a depreciating peso and weak demand.

The upside is a lower-than-target inflation that allows the central bank some flexibility to cut borrowing costs to support consumption and capital spending.

Investors and debt watchers frown upon higher-than-ideal debt ratios which were put under pressure when nations spent more than programmed to contain the COVID-19 pandemic. Getting that debt ratio back to pre COVID-19 era has faced headwinds.

“US dollar weakness and the ability of some central banks to cut policy rates will mitigate the impact of weaker global demand, but the headwinds are already affecting the fiscal consolidation efforts of several governments,” Fitch wrote.

“Some governments are raising spending to support households to alleviate the high cost of living, even though inflation is largely subdued in APAC, often signalling weak domestic activity,” it said.

How well a government manages its finances is one of the major barometers by which Fitch rates a country’s creditworthiness.

“Policy responses to the weaker global demand and uncertainty will be key towards easing the impact of the headwinds on sovereign credit profiles,” the debt watcher said.

Still, so far, data showed that the national government’s gross borrowings declined by 65 percent in September.

Month on month, gross borrowings slid by 74.65 percent from P508.527 billion in August.

Domestic borrowings, which made up 93.51 percent of the total, slipped by 16.98 percent.

External borrowings, which mainly consisted of project loans, are down by 96.23 percent to P8.365 billion in September from P221.983 billion in the previous year.

“Deep domestic capital markets help the financing of fiscal deficits for some, but the region’s fiscal consolidation remains weak in general,” Fitch said, referring to the Asia-Pacific region.