Moody’s flags debt, climate risks in Philippines credit review

MANILA, Philippines — Moody’s Ratings completed its periodic review of the Philippines’ credit profile, citing the economy’s strong growth prospects and stable fiscal metrics while warning of lingering risks from elevated debt costs, global uncertainties and climate change.

In a report, Moody’s said the review “does not announce a credit rating action” but reiterated the factors underpinning the country’s current Baa2 rating and stable outlook.

“The Philippines’ Baa2 ratings are supported by the country’s high economic growth potential and fiscal metrics that are broadly in line with similarly rated peers,” the debt watcher said.

Moody’s noted that the Philippines has a strong access to domestic and international funding markets and ample foreign-currency reserves to weather the volatility in global capital flows.

“These credit strengths are balanced against its low per capita income, some constraints on the quality of institutions, which stand in contrast with high policy effectiveness, and the sovereign’s high exposure to physical climate risks,” it said.

Moody’s said the Philippines’ growth momentum remains intact, with the economy expanding by an average of 5.4 percent in the first half. This puts it on track to meet the agency’s full-year forecast of 5.7 percent, within the government’s 5.5 to 6.5 percent target.

Resilient household spending, steady remittances, public investment and structural reforms support the outlook, but uncertainty over US trade policy and tariffs are flagged as downside risks to domestic consumption and investment.

The debt watcher also highlighted progress in fiscal consolidation, with the government aiming to cut the deficit to 4.3 percent of gross domestic product by 2028.

While this should help moderate debt over time, Moody’s warned that the cost of servicing borrowings will remain high in the near term due to elevated funding costs and a lag in monetary policy transmission, despite recent rate cuts by the Bangko Sentral ng Pilipinas (BSP).

At the same time, Moody’s flagged structural challenges such as low per-capita income, institutional constraints and the country’s high vulnerability to climate shocks.

The stable outlook reflects a balance of upside risks from sustained reforms and investment against downside risks from possible fiscal slippage, geopolitical tensions and climate-related disruptions.

Moody’s said faster-than-expected improvements in fiscal and debt metrics could lift the Philippines’ credit standing in the future, while any backsliding on reforms or weaker fiscal discipline could put pressure on the rating.

In a statement, the BSP welcomed the favorable assessment by credit rating agency Moody’s of the country’s access to external financing.

“The Philippines has built ample reserves and policy space to absorb external shocks, allowing us to maintain stability even in times of global uncertainty,” BSP Governor Eli Remolona Jr. said.

The assessment followed Moody’s affirmation of the Baa2 rating and stable outlook in August last year.

An investment-grade rating indicates low credit risk, which helps lower borrowing costs. This, in turn, allows the government to channel more resources toward socially beneficial programs and initiatives.