S&P cuts Philippines outlook on external risks

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April 10, 2026 | 12:00am

MANILA, Philippines —  S&P Global Ratings has revised its outlook on the Philippines to stable from positive, citing rising external risks from elevated energy prices and geopolitical tensions, even as it affirmed the country’s investment-grade credit rating.

In a report, S&P said it maintained the Philippines’ BBB+ long-term and A-2 short-term sovereign credit ratings, reflecting the economy’s solid growth prospects and improving fiscal position.

However, S&P flagged that external headwinds, particularly from the ongoing Middle East conflict, could weigh on the country’s external and fiscal metrics.

“Our base case assumes the war’s intensity will peak and the Strait of Hormuz’s effective closure will ease during April, but some disruptions are likely to persist for months,” the debt watcher said. 

“Uncertainty over how the situation will unfold is high. We believe it is unlikely that external and fiscal support will improve sufficiently over the next two to three years to meaningfully augment support for the sovereign ratings,” it added. 

The agency expects higher energy prices to push the country’s current account deficit wider this year, reducing the buffer on its net external asset position.

S&P projects the current account deficit to widen to four percent of gross domestic product in 2026 from 3.3 percent of GDP in 2025, driven largely by more expensive energy imports despite a slowdown in capital goods imports.

At the same time, the Philippines’ net external asset position is seen declining sharply to 1.9 percent of current account payments in 2026 from over 40 percent in 2020, though the country is expected to retain its net asset status.

Despite these pressures, the agency said the country’s external position remains a key rating strength, supported by strong foreign exchange reserves and remittances.

S&P noted that economic growth slowed to 4.4 percent in 2025 from an average of 6.3 percent over the previous three years, largely due to reduced public infrastructure spending amid investigations into flood-control projects.

It expects growth to recover to 5.8 percent in 2026, with a stronger second half offsetting early-year weakness from energy shocks and softer consumer sentiment.

“We believe the impact of the ongoing energy shocks due to the Middle East war and governance-related issues would wane by the second half of the year,” the agency said.

Over the medium term, GDP growth is projected to average about 6.2 percent from 2027 to 2029, supported by robust consumption and sustained investments.

The Philippines is also expected to outperform peers at a similar level of development, underpinned by a diversified economy, supportive policies and an improving investment climate.

On the fiscal side, S&P expects gradual improvement, with the general government deficit narrowing to 3.5 percent of GDP in 2025 from 3.7 percent in 2024. 

Deficits are projected to average 2.9 percent over the next three years, although a return to pre-pandemic levels may take longer. Still, the agency warned that fiscal consolidation could be slower than previously expected following the government’s recalibration of deficit targets in late 2025.

Debt levels, which rose to 45 percent of GDP in 2024 from 26 percent in 2019 due to pandemic-related spending, are expected to gradually decline to 42.5 percent by 2029.

Meanwhile, inflation is expected to average about three percent over the next three years, although it is projected to pick up to 3.4 percent in 2026 following the recent oil price surge.

S&P said the Bangko Sentral ng Pilipinas has maintained a “sound record of keeping inflation low” and is likely to adopt a broadly neutral stance for the rest of the year.

The BSP has reduced policy rates by 200 basis points since August 2024 but kept rates steady at 4.25 percent during its off-cycle meeting in late March  amid rising global uncertainties.

S&P said the ratings could be downgraded if long-term growth weakens significantly or if large and persistent current account deficits lead to a structural deterioration in the country’s external position.

On the other hand, an upgrade could be considered if current account deficits narrow and the government achieves faster-than-expected fiscal consolidation.

“The ratings on the Philippines continue to reflect the country’s above-average economic growth potential,” S&P said, noting that ongoing reforms to improve the business environment and investment climate would support long-term expansion.

Still, it pointed out that the country’s relatively low GDP per capita compared with other investment-grade economies remains a constraint on the rating.