THE Philippines’ credit rating could come under pressure if growth challenges persist, a Fitch Ratings official warned on Wednesday, noting risks from rising oil prices, fiscal strain and a slower-than-expected economic recovery.
“Right now, we do view this slowdown in growth as temporary and, again, perhaps hit even more by the Middle East shock,” Fitch Sovereign Ratings Senior Director Jeremy Zook told reporters.
“But I think it would be kind of our view that if these growth challenges become more ingrained and more structural in nature, then that would really be where the potential rating challenges and rating risks come from,” he added.
Fitch affirmed the country’s “BBB” rating with a stable outlook last year, saying the assessment “reflects the Philippines’ strong medium-term growth prospects, which support a gradual reduction in government debt-to-GDP (gross domestic product), and the large size of the economy relative to ‘BBB’ peers.”
Zook on Wednesday said: “Anything that really undermines our view on that medium-term growth outlook would be really the key factor that would lead to some negative rating pressures.”
GDP growth slowed sharply to 4.4 percent last year. Zook said that while they expect a 2026 recovery, supported partly by a pickup in capital expenditure (capex), rising uncertainty stemming from geopolitical tensions posed a risk.
“Our baseline expectation is that we do see a gradual pickup in some of that capex and growth does recover in 2026. Now, of course, the conflict in Iran does challenge this baseline,” he added.
The Philippines’ status as a large net energy importer leaves it particularly vulnerable to oil supply disruptions and price spikes, Zook noted, especially amid the war in the Middle East.
“So, this is something that we’re watching quite closely,” he said.
Zook warned that a sustained surge in global oil prices could significantly widen the country’s external imbalances and weigh on macroeconomic stability.
He noted that during the 2022 energy shock, the Philippines’ net energy import bill rose by about 2.75 percentage points of GDP. A similar scenario — such as oil prices averaging $100 per barrel this year — could again strain the current account.
“That could lead to some pretty significant pressures on the current account deficit, which, while still moderate, is in the mid-three percent of GDP range,” he said.
Higher oil prices could also trigger second-round effects on inflation and growth, Zook said, as seen in 2022 when price pressures accelerated and economic expansion weakened.
“Of course, the follow-on impacts on inflation and then economic growth could also be quite significant if we do see a prolonged period of high oil prices,” he added.
While Fitch still expects a recovery, it may be more gradual than initially projected if energy prices remain elevated.
Zook said that the oil shock could slow the pace of fiscal consolidation and lead to a wider deficit, especially as authorities roll out subsidies to mitigate the impact on households and businesses.
“It may mean a slower pace of consolidation going forward and certainly a higher fiscal deficit this year, as we have seen some in the way of subsidies being rolled out already,” he said.
Government debt levels, which rose during the pandemic, have yet to return to pre-crisis trajectories, with consolidation efforts pushed further into the medium term.
“These shocks just kind of add to that pressure on the fiscal side,” Zook said.