THE country is unlikely to face an immediate sovereign credit downgrade despite rising global prices and geopolitical tensions that could pressure the country’s external position, Moody’s Rating said.
“In our view, at least on the baseline, we don’t see an imminent rating action downgrade or negative type of action anticipated on the Philippines, per se,” Moody’s Sovereign and Sub-Sovereign Risk Group Associate Vice President and analyst Young Kim told reporters in a media briefing on Tuesday.
“But that really depends on, again, the severity and duration of the conflict, as well as some of the government’s responses to the crisis, because we also look into broad institutional strength in our sovereign rating, which in the Philippines, it does have a strong track record of policy effectiveness,” he added.
Moody’s has maintained its “Baa2” rating for the Philippines in the past years, as they see the potential for high economic growth and fiscal metrics that are generally consistent with the country’s peers.
Kim said that their external vulnerability score for the Philippines remains at “AA,” reflecting strong reserve levels and a track record of effectively managing external shocks.
“So, in the Philippines, if you look at the external vulnerability risk that we incorporate in part of the analysis, we still have the score AA, which still has quite a bit of buffer,” Kim said. “Including that still some of the track record of the Philippines having a more robust external position and some of the reserve buffer, I think that will partly mitigate the concern, unlike the others.”
He said one key transmission channel being monitored is the impact of higher global food, energy and input prices on the Philippines’ external accounts.
The country typically runs a current account deficit of around 3.0 percent of gross domestic product (GDP). In a downside scenario where oil prices remain $100 higher on a sustained basis, Kim said the deficit could widen by nearly 1.0 percentage point, pushing it closer to 4 percent of GDP or more.
Higher import costs could widen the trade deficit and put pressure on the peso, he added, which in turn may increase imported inflation.
Middle East conflict poses inflation, policy risks
Kim said they are closely monitoring the economic spillovers from the Middle East conflict, particularly the risk of supply shocks that could fuel inflation in the Philippines.
“In the Philippines, the pass-through to consumers is relatively high. It’s not only energy prices but also food and transport that could push up both headline and core inflation,” he said.
If oil prices were to remain around $100 per barrel for a prolonged period, inflation could exceed the Bangko Sentral ng Pilipinas’ (BSP) 2.0 to 4.0 percent target.
Such a scenario could complicate monetary policy decisions, Kim said.
“The BSP is very data-dependent in its policymaking. If inflation expectations start to become unanchored and spill over to food, transport and wages, that could complicate policymaking,” he said.
Higher inflation could also weigh on economic growth, especially as the Philippine economy continues to recover from slower expansion in 2025.
“So, obviously, growth would be somewhat impacted,” Kim said.