Fitch cuts Philippines’ rating outlook as growth prospects dim

[MANILA] Fitch Ratings revised its outlook on the Philippines’ credit rating to negative from stable, saying a decline in public investment and rising energy costs have created risks to the South-east Asian nation’s economic growth.

The outlook change 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 in a report on Monday (Apr 20).

“These challenges could narrow the country’s GDP growth outperformance relative to peers, amid higher post-pandemic government debt and a gradual and sustained deterioration in its external finance position,” it said.

Fitch affirmed the Philippines’ long-term foreign currency debt rating at an investment grade BBB, saying the nation’s medium-term growth will remain robust, supporting a gradual reduction in state debt.

Manila’s benchmark stock index and peso were little changed on Tuesday.

The Philippine economy grew in the fourth quarter at its weakest pace in 14 years outside the pandemic in the wake of a massive corruption scandal involving flood-control infrastructure. Revelations last July that billions of US dollars in public funds had been misused have dented business and consumer sentiment, while the wide-ranging probe stalled the rollout of government projects.

The war in Iran dimmed chances of a rebound as domestic fuel prices surged, forcing the government to declare a national energy emergency as the conflict threatened its economy and fuel supplies. The government has provided cash aid and other subsidies, while the central bank has warned that average inflation this year may shoot up above its 2 to 4 per cent target. Gross domestic product data for the first quarter is due out next month.

“Investment, in level terms, since 2021 has run below its pre-pandemic trend and is under further pressure amid the recent pullback in public investment. This adds headwinds to our just over 6 per cent medium-term growth assumption,” Fitch said.

The Philippine economy is forecast to grow by 4.6 per cent this year with public spending recovering only gradually and higher energy costs weighing on household consumption, Fitch said. GDP expansion slowed to 4.4 per cent last year from 5.7 per cent in 2024.

SEE ALSO

Philippine sovereign wealth fund targeting investments this year despite Middle East conflict, economic languor

Will the Philippines hit the brakes on a deregulated oil industry amid fuel pain?

Philippine economic managers oppose tax halt on diesel, petrol

S&P lowers Philippines outlook to stable on impact of Iran war

Philippine central bank warns of oil spike ‘spillover effects’ as inflation breaches target

More

In response to the outlook downgrade, Bangko Sentral ng Pilipinas (BSP) governor Eli Remolona said in a statement that “the economy remains in a good position because growth is strong and banks are in good shape.”

While recent oil price pressures are driven by global supply shocks, Remolona said the central bank remains vigilant against spillover effects and the risk of de‑anchoring inflation expectations. “It stands ready to act in a measured, timely, and data‑driven manner.” he added.

Ahead of the BSP’s rate-setting meeting on Thursday, analysts are evenly split between a hold and a 25-basis point hike. The meeting will likely be a close call as the BSP confronts intensifying trade-offs between growth and inflation, according to Oversea-Chinese Banking Corp.

“We err on the side of hold given growth risks,” said OCBC economist Lavanya Venkateswaran, adding that analysts will closely monitor the tone of the decision and the inflation outlook to assess the BSP’s rate path ahead.

Earlier this month, S&P Global Ratings lowered its rating outlook on the Philippines to stable from positive, saying the war in the Middle East has raised risks for the country’s balance of payments and fiscal position. It affirmed Manila’s long-term foreign currency debt rating at BBB+.

Moody’s Ratings rates the Philippines’ long-term foreign debt at Baa2 with a stable outlook.

“The Fitch outlook revision crystallises the challenges confronting the Philippine economy,” said Venkateswaran. “The Philippine economy is most vulnerable to stagflation risks characterised by accelerating inflation and decelerating growth.” BLOOMBERG