Fitch maintains Philippines’ ’BBB’ rating with stable outlook

Investing.com -- Fitch Ratings has confirmed the Philippines’ Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’BBB’ with a Stable Outlook on Tuesday, April 29, 2025. The rating reflects the nation’s robust medium-term growth, which aids in the gradual reduction of government debt to GDP ratio, and the substantial size of the economy compared to other ’BBB’ rated countries.

The rating is hindered by the low GDP per capita, despite its upward trend. The country’s governance standards are inferior to its ’BBB’ peers, even though Fitch believes that the World Bank Governance Indicator (WBGI) scores might exaggerate this fact.

Fitch anticipates the Philippines’ economy to grow by 5.6% in 2025, driven by large public investments in infrastructure, service exports, and private consumption funded by remittances. Private demand is expected to be boosted by decreasing inflation and interest rates. However, domestic political uncertainty and global trade tensions could potentially hinder growth.

The Philippines’ economy, relatively closed with goods exports making up about 12% of its GDP in 2024, has limited exposure to trade tensions. Most of these exports are electronics and machinery, with over 16% of goods exports going to the US. The Philippines could potentially benefit from the relatively low tariff rate of 17% if the reciprocal tariffs announced by the US in April come into effect.

Fitch maintains its forecast for real GDP growth to exceed 6% in the medium term, reflecting the benefits from investments in infrastructure and structural reforms to liberalize the economy and promote trade and investment. The country’s large outsourcing sector faces risks from technological change, even though it is adapting.

The general government (GG) budget deficit is expected to reduce to 3.6% of GDP by 2026, mainly due to spending efficiencies and improved tax collection. However, risks are skewed towards slower consolidation, given the government’s focus on growth.

Fitch projects the GG debt to GDP ratio to remain roughly constant at 54%-55% of GDP over 2025 to 2026. Strong nominal GDP growth and narrowing fiscal deficits contribute to the forecast of a downward trajectory for government debt to GDP over the medium term.

The country’s current account (CA) deficit is expected to remain stable in 2025-2026 after widening to 3.8% of GDP in 2024, mainly due to a surge in travel debits. The Philippines is financing CA deficits through long-term external borrowing and Foreign Direct Investment (FDI), but this is gradually eroding its external position.

The country has successfully managed inflation, with consumer price inflation expected to remain around 2.0% in 2025-2026. The central bank’s inflation-targeting framework and flexible exchange-rate regime are viewed as credible by Fitch.

Domestic political tensions have escalated ahead of mid-term elections on May 12, 2025. An impeachment trial for Vice President Sara Duterte is pending in the Senate. Her father, former President Rodrigo Duterte, has been extradited to the International Criminal Court in The Hague.

The Philippines has an ESG Relevance Score of ’5’ for Political Stability and Rights, Rule of Law, Institutional and Regulatory Quality, and Control of Corruption, reflecting the high weight the WBGIs have in Fitch’s proprietary sovereign rating model.

Fitch has outlined factors that could lead to a negative rating action or downgrade, such as failure to maintain a stable government debt/GDP ratio, reduced confidence in stable medium-term economic growth, and significant deterioration in foreign-currency reserves and the country’s net external debt position.

Conversely, factors that could lead to a positive rating action or upgrade include sustained reductions in government debt/GDP and debt/revenue ratios, stronger medium-term growth than currently forecasted, and strengthening of governance standards.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.