PH at risk of first credit downgrade since 2005
The Philippines is at risk of its first credit rating downgrade in more than two decades after Fitch Ratings lowered its outlook to “negative,” citing the energy shock from the Middle East war compounded by disruptions in public spending due to the major graft scandal last year.
While Fitch affirmed the country’s “BBB” investment-grade rating, the shift in outlook from “stable” signals a higher likelihood that the rating could be downgraded over the next one to two years, potentially derailing the Marcos administration’s push to secure an “A” rating.
“The Outlook revision reflects rising risks to the Philippines’ strong medium-term growth prospects from recent disruptions to public investment, exacerbated in the near-term by elevated exposure to the ongoing global energy shock,” Fitch said.
“These challenges could narrow the country’s GDP (gross domestic product) growth outperformance relative to peers, amid higher post-pandemic government debt and a gradual and sustained deterioration in its external finance position,” it added.
This marks the second outlook downgrade for the Philippines in recent months, after S&P Global Ratings earlier revised its outlook to “stable” from “positive.”
The latest move also raises the prospect of the country’s first credit rating downgrade since 2005, when S&P cut the Philippines to below investment grade of “BB-” amid concerns over fiscal weaknesses during the administration of then President Gloria Macapagal-Arroyo.
Below target
Fitch now expects GDP growth to reach 4.6 percent in 2026. While slightly higher than the 4.4 percent recorded in 2025, this would still fall short of the government’s revised 5-percent to 6-percent target.
Inflation is projected to average 4.1 percent this year—more than double last year’s 1.7 percent and above the central bank’s 2-percent to 4-percent target band.
According to Fitch, growth is likely to remain subdued in the near term, with the energy price shock expected to ease only by the second quarter of 2026.
The Philippines is particularly vulnerable to global energy shocks due to its heavy reliance on imported fuel in the war-torn region, which has already pushed inflation to a near two-year high of 4.1 percent in March.
In response, the government declared a national energy emergency to manage supply and mitigate the impact on key sectors.
“Consumers are absorbing the bulk of energy price increases, with the government providing targeted subsidies to vulnerable sectors. As such, effects on the credit profile are likely to come through lower GDP growth, higher inflation and a rising current account deficit, with modest risks to public finances,” Fitch said.
Fragile growth momentum
Fitch also noted that the country’s growth momentum remains fragile, with investment still recovering from the fallout of the flood control corruption scandal.
“Public capex (capital expenditure) is an important component of our medium-term outlook as it addresses infrastructure gaps and crowds in private investment,” it said.
“Efforts to improve governance around capex disbursements are positive but could result in lower infrastructure spending and GDP growth multipliers in the coming years,” it added.
With domestic and global headwinds intensifying, Fitch said a downgrade could be triggered by reduced confidence in the country’s growth outlook, rising government debt or a deterioration in its external position, including weaker foreign-exchange reserves.
