Hopes dim for PH credit rating upgrade
The Philippines’ bid for an “A” credit rating slipped further from reach after two of the three major ratings agencies downgraded their outlook, sharpening focus on how the Marcos administration will prevent a deterioration in the country’s creditworthiness while sustaining a strong economic recovery.
The Department of Finance emphasized the affirmation of the investment-grade rating, calling it a reflection of the country’s “strong economic fundamentals and sound fiscal position.”
“The Philippine economy remains on solid footing with a robust domestic market, stable financial system and recognized reforms,” the department said.
On Monday, Fitch Ratings revised its sovereign outlook on the Philippines to “negative” from “stable,” signaling that the country’s investment-grade “BBB” rating could be downgraded within one to two years if fiscal health fails to improve.
The move followed last week’s setback, when S&P Global Ratings cut its outlook to “stable” from “positive,” dashing hopes of securing the country’s first-ever “A” rating from one of the so-called Big Three credit watchers.
Explaining their actions, both Fitch and S&P pointed to the same challenge: government—still reeling from the fallout of a major corruption scandal that paralyzed public spending—is confronting the ongoing oil crisis with diminished fiscal buffers.
Moody’s Ratings, the third major agency, has yet to announce a rating action. But in an April 14 credit opinion, it warned that the conflict in the Gulf region has increased downside risks to the Philippines’ economic outlook by lifting global energy prices and intensifying external cost pressures.
Already, multilateral institutions have begun trimming growth forecasts. The United Nations now expects the economy to expand by 5.2 percent this year, down from a previous projection of 5.7 percent, and sees growth rebounding to 5.7 percent next year, also lower than its earlier forecast of 6.1 percent.
A rating downgrade would mark the country’s first since 2005, when political turmoil and fiscal instability eroded the Philippines’ credit standing. A lower rating could raise the government’s borrowing costs at a time when it is running a budget deficit to finance development spending.
“The upgrade story is clearly over, and the Philippines is now in defense mode,” Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said. “Other agencies could revise outlooks, but a downgrade isn’t imminent as long as growth stabilizes, inflation is contained, and fiscal execution improves.”
Leonardo Lanzona, an economist at Ateneo De Manila University, said the situation remains dire even if the Middle East war is resolved. “The more immediate concern is not a rating cut—it is how the government responds to the factors leading to the downgrade,” he said.
Cid Terosa, an associate professor at the University of Asia and the Pacific School of Economics, said maintaining fiscal prudence while supporting a strong economic recovery will be key to avoiding a downgrade. “The government should show that it can ably manage the impacts of the energy crisis and related supply issues,” he said.
On monetary policy, BMI Research, a unit of Fitch Group, said the BSP may opt to keep the policy rate steady at 4.25 percent this week, choosing instead to look through temporary supply-driven price pressures amid weak growth and strain on household finances.
“Spending will remain influenced by the elevated inflationary pressures as well as currently high debt levels, along with related debt servicing costs although a tight labor market will still support spending,” it said.
