Moody’s Ratings on Monday affirmed the Philippines’ Baa2 sovereign credit rating and maintained its stable outlook, citing expectations of fiscal stabilization and an economic growth recovery.
The ratings agency expects the Philippine economy to post slower growth of around 3.6 percent in 2026, well below its medium-term potential, before rebounding to about 5.3 percent in 2027.
The near-term weakness was attributed to higher food and energy prices stemming from the war in the Middle East and a sharp contraction in public investment following last year’s massive flood control project scandal.
It expects the recovery to start in the second half of 2026, to be led by a rebound in public investment as the government resumes stalled disbursements and normalizes spending execution.
“The ratings affirmation reflects our expectation that stabilization in the Philippines’ fiscal metrics over the next two years will be supported by a gradual recovery in economic growth from the current cyclical slowdown and the government’s continued commitment to fiscal consolidation,” Moody’s said.
It also cited the government’s strong access to domestic and international funding markets and sufficient foreign-currency reserves as credit strengths that could help the country weather global capital flow volatility.
These, however, are balanced against weakening debt affordability, constraints on institutional quality, low income levels and the Philippines’ high exposure to physical climate risks.
Moody’s expects fiscal consolidation to continue broadly in line with the government’s Medium-Term Fiscal Framework, although at a slower pace than previously projected.
The government in July lowered its growth assumptions and adopted a more gradual deficit-reduction path, targeting a deficit of 4.8 percent of gross domestic product (GDP) by 2028, compared with its previous 4.3-percent target, and 3.5 percent by 2030.
On a general government basis, Moody’s expects the fiscal deficit to narrow to around 3.9 percent of GDP in 2026 from 4.3 percent in 2024.
The agency expects the general government debt burden to peak at around 58 percent of GDP in 2026-27, broadly in line with the median of Baa-rated peers at around 60 percent, before stabilizing and gradually declining as growth recovers and the primary balance improves.
Debt affordability, however, is expected to weaken further, with interest payments projected to absorb more than 14 percent of government revenue over the next two to three years.
This is above the roughly nine-percent median for Baa-rated peers.
“Debt affordability, however, will continue to weaken over the next two to three years,” Moody’s said, adding that the deterioration would be “durable rather than temporary.”
Despite this, the agency said proactive liability management by the Bureau of the Treasury, including lengthening average debt maturity and maintaining a predominantly fixed-rate, local-currency debt stock, should help mitigate refinancing and interest-rate risks.
The stable outlook reflects a balance of risks at the Baa2 level, with Moody’s expecting fiscal consolidation and debt stabilization to remain broadly on track despite the current cyclical slowdown.
It warned that a slower recovery in business confidence, continued weakness in government infrastructure project execution and political developments ahead of the 2028 elections could weigh on investment, growth and fiscal consolidation.
Moody’s also pointed to delays in planned revenue measures as a potential risk to the government’s fiscal consolidation efforts.
For an upgrade, the agency said the Philippines would need to show a sustained track record of fiscal consolidation that puts government debt on a firm downward path and reverses the deterioration in debt affordability.
Stronger growth that raises the country’s medium-term economic potential through higher private investment and productivity gains would also be credit positive.
Conversely, a sustained deterioration in fiscal and debt metrics, a more persistent economic slowdown, or a reversal or stalling of reforms could put downward pressure on the rating.
Moody’s also affirmed the Philippines’ foreign currency senior unsecured shelf rating at (P)Baa2, the Republic of the Philippines Sukuk Trust’s backed senior unsecured rating at Baa2, and the senior unsecured ratings of the Bangko Sentral ng Pilipinas at Baa2, all with stable outlooks.