S&P Global Ratings has revised the Philippines’ credit outlook to “stable” from “positive,” citing risks to the country’s external position amid higher oil prices.
“We revised the rating outlook on the Philippines ... because the war in the Middle East has increased risks for the trajectory of the country’s external and fiscal metrics,” it said on Thursday.
The debt watcher maintained the country’s investment-grade “BBB+” long-term and “A-2” short-term sovereign credit ratings.
The Bangko Sentral ng Pilipinas (BSP) acknowledged the downgrade and said it would “continue to monitor local and overseas data to effect policies aimed at safeguarding price and financial stability amid a challenging economic and geopolitical landscape.”
The outlook revision means the Marcos government’s goal of an “A” rating before its term ends will likely be missed. The BSP said the stable outlook means that the current rating is unlikely to be changed in the next two years.
S&P noted that while the Middle East war was expected to peak and the effective closure of the Strait of Hormuz could ease in April, some disruptions were likely to continue for several months.
“[U]ncertainty over how the situation will unfold is high,” it said.
“We believe it is unlikely that external and fiscal support will improve sufficiently over the next two to three years to meaningfully augment support for the sovereign ratings,” S&P added.
It still expects the country to grow 5.8 percent this year, up from the 4.4-percent slump in 2025 and within the government’s 5.0- to 6.0-percent target for the year.
“We believe the impact of the ongoing energy shocks due to the Middle East war and governance-related issues would wane by the second half of the year,” S&P said.
“Reforms in policies affecting business, investment, and tax will benefit growth over the next three to four years,” it added.
Over the medium term, S&P expects growth to average around 6.2 percent from 2027 to 2029, driven by consumption and investment. It also noted that policy reforms and infrastructure spending would support productivity gains and improved investment conditions.
External position under pressure
S&P said higher oil prices and weaker global conditions would widen the Philippines’ current account deficit, reducing external buffers.
“Elevated energy prices will widen the Philippines’ current account deficit this year, reducing [the] cushion on its net external asset position,” S&P said.
The ratings agency said the current account deficit was likely to widen to four percent of GDP in 2026 from 3.3 percent in 2025, largely due to costlier energy imports amid the conflict.
Still, S&P said the country’s external position remained a key rating strength, supported by remittances, foreign exchange reserves and steady foreign direct investments.
“We expect these inflows to continue to be robust this year despite strong external headwinds. The Filipino diaspora has a strong record in remitting money home throughout past episodes of global stress,” it said.
Moreover, fiscal metrics are expected to continue improving gradually as growth stabilizes, though consolidation will take time.
“Ongoing economic recovery in the Philippines should facilitate a reduction in general government deficit and stabilization of the debt burden,” S&P said.
It said the general government deficit could average about 2.9 percent of gross domestic product (GDP) over the next three years, with debt declining to around 42.5 percent of GDP by 2029.
Risks remain, it said, particularly if the government introduces additional spending measures to cushion the impact of the energy shock. S&P also warned that cuts to fuel excise taxes could reduce fiscal revenues and widen deficits.
S&P said the Philippines’ ratings could face downward pressure if growth weakens significantly or external balances deteriorate further.
“We may lower the ratings if the country’s long-term growth trend erodes significantly, leading to a deterioration in the government’s fiscal and debt positions,” it said.
Conversely, an upgrade could occur if current account deficits narrow and fiscal consolidation progresses faster than expected.
For now, S&P said the country’s above-average growth potential, prudent fiscal management and strong external buffers continued to support the investment-grade rating even as global volatility had clouded the near-term outlook.
