‘Philippines credit downgrade unlikely’

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April 23, 2026 | 12:00am

Despite Fitch’s negative outlook

MANILA, Philippines — A credit rating downgrade for the Philippines remains unlikely in the near term despite Fitch Ratings’ decision to revise its outlook to negative, with analysts saying the move is more of a warning than a signal of imminent action.

In a report, Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani said an outright downgrade is not expected unless external shocks, particularly from the Middle East conflict, worsen significantly.

“We think an outright downgrade looks unlikely, barring a prolonged Iran conflict,” they said, noting that Fitch’s decision was driven by the country’s exposure to the energy price shock and disruptions to public investment spending linked to the corruption controversy.

Nomura said these headwinds are likely temporary, with growth expected to recover as infrastructure spending picks up and external conditions stabilize.

“By the next review cycle (which is usually 12 months, unless there are significant developments that warrant an earlier review), the main factors cited by Fitch for a downgrade will likely show some improvements,” they said.

Nomura said it sees Philippine gross domestic product expanding by five percent in 2026, still above Fitch’s 4.6-percent forecast despite a downward revision from the bank’s earlier 5.3 percent estimate to account for the energy price shock.

On the fiscal front, Nomura said risks in the Philippines remain relatively manageable compared with similarly rated peers, noting that the government is unlikely to resort to broad-based fuel subsidies that are difficult to unwind.

This, in turn, suggests that the country’s medium-term fiscal consolidation agenda should remain intact, although with a more gradual pace as authorities recalibrate policies in response to external shocks and evolving domestic conditions.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said that while other rating agencies may follow with similar outlook revisions, a downgrade is not imminent if macroeconomic fundamentals hold.

“Other agencies could revise outlooks, but a downgrade is not imminent as long as growth stabilizes, inflation is contained and fiscal execution improves,” he said.

Ravelas warned, however, that risks could escalate if external pressures persist.

“The risk is clear: if oil prices stay high and the current-account deficit widens without a strong policy response, the cushion protecting our BBB rating gets very thin,” he said.

For her part, DBS Bank senior economist Radhika Rao said Fitch pointed to “growth risks from slower public spending and uncertain capex recovery,” which are being compounded by the energy price shock.

Rao also noted that rating agencies have earlier flagged elevated debt levels and the slow pace of fiscal consolidation as key constraints.

“A negative outlook change typically reflects a cautious view on the sovereign, opening the window for follow-up action over the next 18 to 24 months,” Rao said.

Overall, analysts said the Philippines’ investment-grade rating remains intact for now, but the outlook shift underscores the need for stronger policy response to external risks and fiscal pressures.

The Philippines is currently rated a notch above the minimum investment grade by Fitch (at “BBB” with a negative outlook), and two notches above the minimum investment grade by S&P Global (at “BBB+” with a stable outlook) and Moody’s (at “Baa2” with a stable outlook).