Fitch affirms Philippines credit rating, stable outlook

But cites political tensions

MANILA, Philippines — International debt watcher Fitch Ratings has affirmed the Philippines’ credit rating at “BBB” with a stable outlook, citing the country’s strong medium-term growth prospects, prudent economic management and ongoing structural reforms.

In a report released yesterday, Fitch said the affirmation reflects the Philippine economy’s “solid domestically driven growth” and the government’s commitment to gradual fiscal consolidation, which together are expected to keep public debt manageable over the medium term.

Fitch expects the economy to grow by 5.6 percent this year, in line with 2023-2024 performance. The recovery will be powered by robust public infrastructure investment, resilient remittances and easing inflation and interest rates, which should boost private consumption.

The credit rater also said that the country’s real gross domestic product (GDP) growth could rise above six percent in the medium term, more than double the projected average of other “BBB”-rated peers.

This upbeat outlook is anchored on recent structural reforms aimed at economic liberalization, including efforts to expand public-private partnerships and improve the investment climate.

However, Fitch warned of potential headwinds such as political uncertainty, slowing fiscal consolidation and external vulnerabilities. It also flagged the country’s relatively low GDP per capita and weaker governance standards as constraints to a potential credit upgrade.

Fitch sees the general governmen deficit narrowing to 3.6 percent of GDP by 2026, down from an estimated 4.6 percent in 2024, as the government improves tax collection and enhances spending efficiency. However, it warned that the government’s scaled-back fiscal program, which are focused more on growth than consolidation, could pose risks of fiscal slippage.

The debt watcher also emphasized the Bangko Sentral ng Pilipinas (BSP)’s measured monetary response, including a 25 basis point rate cut in April, bringing the policy rate to 5.5%. Inflation is projected to stay around two percent in the next two years, at the lower end of the BSP’s target.

Fitch also commended the central bank’s flexible exchange rate regime and inflation-targeting framework, noting that monetary financing during the pandemic was “limited and reversed more quickly than in some peers.”

BSP Governor Eli Remolona, Jr. welcomed Fitch’s reaffirmation of the country’s investment-grade credit rating.

“The BSP took actions to help keep inflation manageable and promote sustainable economic growth. The BSP will continue to do so,” he said.

Meanwhile, the credit report noted rising political tensions ahead of the May 12 midterm elections, where all House seats and half of the Senate will be contested. An impeachment trial against Vice President Sara Duterte is pending, while her father, former president Rodrigo Duterte, has been extradited to the International Criminal Court in The Hague.

Fitch said that such political developments could affect investor confidence and policy continuity.

The debt watcher could downgrade the Philippines’ credit rating if fiscal consolidation stalls, macroeconomic policies weaken, or the external debt position deteriorates significantly.

Conversely, an upgrade could be possible if the government delivers sustained reductions in debt, maintains sound policies, and improves governance and income levels to converge with peer medians.

An investment-grade rating signals low credit risk and affordable access to funding. This enables a country to allocate funds to socially beneficial initiatives and programs.