S&P says Philippines on track for rating upgrade

The Philippines remains on track for a possible credit rating upgrade as improving fiscal and external balances outweigh risks from the government’s flood control controversy, Standard & Poor’s (S&P) Global Ratings said.

“We also see the Philippine sovereign credit metrics strengthening over the next one to two years,” the rating company said in a Feb. 3 report. “Over this period, we expect that narrowing fiscal and current account deficits could augment sovereign credit buffers sufficiently to better support a higher rating.”

S&P last affirmed the Philippines’ long-term “BBB+” and short-term “A-2” credit ratings in November. It also kept a “positive” outlook on the country, signaling that a rating upgrade is possible over the next one to two years if improvements in credit fundamentals are sustained.

The debt watcher said it remains optimistic about the Philippines’ medium-term growth prospects despite the political fallout from allegations of corruption tied to flood control projects.

However, it cautioned that the controversy could slow progress in strengthening the country’s credit profile.

“The political spillover of alleged corruption related to flood control projects may slow the credit improvement,” S&P said.

It added that the government has devoted significant attention to investigating the misuse of public funds and addressing impeachment complaints against the President, while some infrastructure projects have been suspended as a result.

Still, S&P kept its gross domestic product (GDP) growth forecast for the Philippines at 5.7% this year, near the upper end of the government’s 5% to 6% goal.

This would make the Philippines one of the fastest-growing economies in the Asia-Pacific region, trailing only India and Vietnam, which are projected to expand by 6.7%.

“Despite a likely economic slowdown, we still expect the Philippines to remain an outperformer among peers at similar levels of average income,” S&P said.

The Philippine economy grew 4.4% last year, its weakest performance in five years. Fourth-quarter GDP growth slowed to 3%, the lowest in 16 years excluding the pandemic period, as delays in flood control projects weighed on investment, household spending, and government disbursements.

Fiscal pressures also remained evident. The National Government’s budget deficit had widened to PHP 1.26 trillion as of end-November 2025 from PHP 1.18 trillion a year earlier, according to Treasury data. This reflected sluggish revenue growth alongside restrained spending during the period.

State revenue reached PHP 340.7 billion in November, a marginal 0.72% increase from a year earlier.

Even so, S&P said reduced capital spending would likely limit the impact of weaker revenue performance on the fiscal deficit. It expects the deficit to continue narrowing over the medium term as fiscal consolidation efforts take hold.

For 2027 and 2028, S&P projected GDP growth at 6.5%. The Development Budget Coordination Committee is targeting economic growth of 5.5% to 6.5% next year and 6% to 7% in 2028.

S&P said an upgrade to the Philippines’ credit rating could occur if the government strengthens fiscal consolidation and further narrows its current account deficits, supporting a stable external position over the long term.

Ensuring that the narrow net external balance supports a structural net asset position would be credit positive.

On the other hand, S&P warned that a deterioration in fiscal or debt metrics, coupled with weaker long-term growth prospects, could prompt it to revise the country’s outlook to “stable.”

“We could also revise the outlook to stable if persistently large current account deficits lead to a structural weakening of the Philippines’ external balance sheet,” it said.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that the country’s current account deficit narrowed to 2.8% of GDP in the third quarter of last year from 4.8% a year earlier.

The BSP expects the current account deficit to have settled at 3.2% of GDP at end-2025 and ease further to 3% this year. — Katherine K. Chan