By Justine Irish D. Tabile, Senior Journalist
PHILIPPINES may miss out its aim to achieve an “A” level credit rating between the following two years as another credit keeper has been terminated its view of the world, the war in the Middle East and the slow pace public investment to put the country’s growth prospects are at risk.
On Monday, Fitch Ratings affirmed the Philippines’ long-term issuer default rating to “BBB” but downgraded it the outlook goes from “negative” to “stable.”
“The review of the outlook shows the growing risks to the strong growth of the Philippines in the medium term from the recent disruption to public investment, which is aggravated in the near term due to the large exposure to the world. These challenges can reduce the growth of the country’s GDP (domestic product) of the country compared to peers, amid the high state of the government’s recession,” it said.
“The confirmation reflects our premise that, despite rising risks, medium-term GDP growth will remain strong, supporting a gradual decline in public debt.”
A “negative” outlook from the credit rating agency means it sees a high chance of a downgrade over the next two years.
The government aims to achieve an “A” rating by 2028 or the end of the Marcos administration.
Fitch last gave the Philippines a “severe” outlook for 2021 during the coronavirus crisis, which laterfwas equipped for the entire year of 2022. This was revised back to “stable” in May 2023.
Earlier this month, S&P Global Ratings revised its outlook on the Philippines from “stable” to “good” butfupset the country’s long-term “BBB+” ratingas it expects the country’s fisThe general and foreign situation will be under pressure due to the conflict in the Middle East.
The shock caused by the war is likely to dampen growth and inflationary effects as it curbs investment and household consumption, said GlobalSource Partners Philippine Analyst and Senior Advisor Diwa C. Guinigundo, who is also the central bank’s deputy governor.
“In the process, it may increase the country’s risk profile and reduce growth momentum,” he said in a Viber message.
“If these country risks are to continue beyond this year, and no decisive policy actions are forthcoming, achieving an ‘A’ investment grade rating would not have been possible in the last two years of this administration.”
Fitch’s move to downgrade its outlook reflects the country’s exposure to the risks of an Iran war, he added.
“We are heavily dependent on imported oil, our fiscal space continues to shrink, and inflation is likely to breach the 2026 target.”
Reyes Tacandong & Co. Senior Counsel Jonathan L. Ravelas said the “bad” idea is a “reality check” rather than a problem.
“The growth story is clearly over, and the Philippines is now on the defensive. Other agencies may revise the outlook, but a slowdown is not imminent as long as growth is stable, inflation is contained and financial performance improves,” he said in a Viber message.
“The danger is clear: if oil prices remain high and the current account untilficit increases without a strong policy response, the cushion protecting our ‘BBB’ rating becomes very thin.”
Rising oil prices and dwindling fuel reserves have pressured the Philippine government to place the country under a one-year national energy emergency and freeze petroleum gas and kerosene taxes.
The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 5.1% this year, above the target of 2%-4% and last year’s print of 1.7%, as the impact of the conflict in global crude oil prices is likely to increase domestic food, energy, and transportation costs.
In March, the consumer price index has already breached the central bank’s target as it rose to 4.1% due to higher fuel prices.
On the other hand, Fitch sees an average inflation of 4.1% in 2026.
FINANCIAL CONCERNS
Mr. Guinigundo added that the intervention needed to increase the economic impact caused by the war may affect the state of the country’s finances.
“Medium-term fiscal consolidation may be delayed due to the need for financing in the economy, including that of vulnerable sectors,” he said. “That could further undermine market confidence in the country’s economic prospects.”
He said, “mitigation methods may be difficult to set right now because the problems are systemic, and they cannot be done in the short term.”
“We should have done our homework decades ago.”
Fitch said he expects the government’s fiscal consolidation program to continue gradually over the next few years.
“We expect the general government deficit to stabilize at 3.7% of GDP in 2026. This is in line with a stable National Government deficit of 5.6% of GDP, slightly above the 5.3% of the budget target, as we expect weak growth to weigh on revenue. To improve spending,” he said.
“The risks are towards a slower pace of deficit reduction as we believe that the government is likely to prioritize the goals of GDP growth and social stability.”
The impact of the conflict on the country’s debt profile will likely be reflected in “low GDP growth, low inflation and widening current account deficits, with modest risks to public finances,” it added.
The economy is expected to grow by 4.6% this year, below the government’s target of 5%-6%, as it sees public spending – which was halted by the scandal related to the linking of flood control projects, leading to post-pandemic GDP growth of 4.4% in 2025 – slowly recovering. High energy costs during the war may also affect domestic consumption, an important engine of growth.
“Investment, broadly speaking, from 2021 has been below its pre-pandemic trend and is under further pressure amid the recent downturn in public investment. This adds headwinds to our medium-term growth outlook of just over 6%. Public capex (capital expenditure) is an important part of our medium-term outlook as it addresses the private infrastructure gap,” Fitch said.
“Efforts to improve governance around capex spending are good but could lead to lower spending on infrastructure and slower GDP growth in the coming years.” However, successful capex governance reforms, and efforts to deepen private sector involvement, can improve quality andfspending pressure can keep GDP growth high even if spending is low. “
LONG TERM PROSPECTS ARE SURE
Palace Press official Clarissa A. Castro, citing the Department of In finance, he said a “negative” outlook does not mean disappointmentindependent rate reduction.
“Fitch also clearly highlighted the government’s strong response to global challenges, especially energy shocks,” he said in a news release. forum on Tuesday.
The government’s efforts to declare a national electricity emergency and implement fuel-saving strategies “show smooth and responsible economic management, which continues to strengthen market confidence.”
“Besides, the Philippines continues to enjoy strong access to global capital markets supported by investor-based diversification and the continued demand for its exports from the Republic of the Philippines,” he said.
“These are clear indicators of investor confidence in the country’s long-term trajectory.”
The Ministry of Finance has stated that the reduction of views is caused by this situation in the Middle East.
“The revised vision was caused by external political shocks from the Middle EastfOur downgrade reflects our strong economic fundamentals and strong financial position.” “The Philippine economy remains in a strong position with a strong domestic market, a stable financial system, and recognized reforms.”
“The economy remains in good shape because growth is strong, and banks are in good shape,” said BSP Governor Eli M. Remolona, Jr. in a statement on Monday. “The BSP is closely monitoring the impact of high oil prices and political developments, especially conflicts in the Middle East, on inflation and the overall Philippine economy.”
The central bank’s Monetary Board will meet on Thursday (April 23), where some analysts expect the first rate hike to help keep inflation expectations in check as they wait for the second round of price effects from the war-driven oil shock to emerge soon.
