Fitch turns ‘negative’ on Philippines; credit downgrade possible

MANILA, Philippines — Fitch Ratings has downgraded the Philippines’ outlook to negative from stable, signaling rising risks to the country’s credit profile even as it maintained the investment-grade “BBB” rating.

In a rating action commentary, Fitch said the revision reflects mounting external pressures, particularly from elevated global energy prices, which could weigh on growth, inflation and fiscal performance.

“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.

The credit rater affirmed the country’s long-term foreign-currency issuer default rating (IDR) at “BBB,” indicating that while risks have increased, the Philippines continues to have adequate capacity to meet its financial commitments.

Fitch expects Philippine gross domestic product (GDP) growth to hit 4.6 percent in 2026 as public investment gradually recovers, although higher energy costs are expected to weigh on household consumption.

The outlook downgrade was largely driven by vulnerabilities in the country’s external position, particularly its reliance on imported energy and exposure to oil price volatility.

“We forecast rising energy import costs to push the current account deficit (CAD) to 3.8 percent of GDP in 2026 from 3.3 percent in 2025,” Fitch said.

The agency noted that while the deficit is expected to be financed through long-term borrowing and foreign investments, persistent external pressures could strain the country’s buffers.

Inflation is also seen accelerating, with Fitch projecting it to average 4.1 percent in 2026 from 1.7 percent in 2025, driven by higher energy prices. Risks, it said, are tilted to the upside if the shock persists.

On the fiscal side, Fitch expects the general government deficit to remain at 3.7 percent of GDP this year, warning that targeted subsidies may contain risks, but a prolonged energy shock could increase spending pressures.

A negative outlook reflects a higher likelihood of a downgrade over the medium term, typically within 12 to 18 months, if pressures persist.

But the Bangko Sentral ng Pilipinas clarified that this does not automatically imply a rating downgrade. “Based on Fitch’s definition, revision in the outlook does not imply a rating change is inevitable,”

BSP Governor Eli Remolona Jr. said the economy remains in a strong position despite rising risks.

He said the BSP is closely monitoring the impact of higher oil prices and geopolitical developments on inflation and the overall Philippine economy.