Phl vulnerable to shift in US outsourcing policy

By Lawrence Agcaoili (The Philippine Star)
Updated February 9, 2017 – 12:00am
http://www.philstar.com/business/2017/02/09/1670305/phl-vulnerable-shift-us-outsourcing-policy

In a report titled “Challenging Global Environment to Test Asia’s Robust Credit Fundamentals,” Moody’s said significantly reduced US engagement in global trade under the Trump administration could pose downside risks to the major trade and investment partners of the US.

“Such a policy shift, if implemented, could pose greater risks to high-value manufacturing exporters in the region, particularly Korea, Malaysia and Taiwan. India and the Philippines would be the most vulnerable if the US were to tighten rules on service outsourcing,” it said.

Moody’s said Trump promised to renegotiate trade relationships with its largest trade partners including China and to increase trade barriers to protect US industries and labor markets from foreign competition.

The report said the decision of the US to withdraw from the Trans-pacific Partnership (TPP) represents a lost opportunity for Asia especially for countries that would have substantially expanded their export access to major markets.

In addition, the end of TPP could slow the reform momentum the deal had fuelled. In particular, the lost export and growth opportunities are material for Vietnam and Malaysia, which would have benefited from the opening up of trade with the US, and relatively large foreign direct investment inflows over the long-term.

The earnings of the business process outsourcing (BPO) sector as well as cash remittances from Filipinos abroad serve as a major source of foreign exchange for the Philippines.

Moody’s expect global credit condition to remain uneven this year amid existing and emerging risks that could place downward pressure on Asian growth prospects and creditworthiness over the next 12 to 18 months.

Aside from the potential changes to US trade policy and rising protectionism globally, other risks include China’s trilemma, disorderly response to the tightening of the US Federal Reserve policy, political developments in Europe, and elevated leverage in many Asian economies.

Meanwhile, the Philippines is one of the 10 countries in Asia given a stable outlook on the banking system by Moody’s.

However, only the Philippines and India got stable ratings on operating environment, asset quality, capital, funding and liquidity, profitability and efficiency as well as government support.

“This result mainly reflects our expectation that a more challenging operating environment for banks in the region could lead to a deterioration in their asset quality and profitability,” Moody’s said.

Moody’s rates the country’s sovereign debt at Baa2 while S&P Global Ratings gave the country a rating of BBB, both a notch above investment grade on a stable outlook.

On the other hand, Fitch Ratings gave the Philippines a BBB- rating that is equivalent to a minimum investment grade on a positive outlook.