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The PHP 8.7-billion rehabilitation of the Epifanio de los Santos Avenue (EDSA) is set to begin on June 13 and expected to be completed by 2027, the Department of Transportation (DoTr) said on Monday.

The DoTr outlined plans to address the traffic congestion that is expected to worsen once parts of Metro Manila’s busiest highway will be closed for rehabilitation work.

“We will rebuild EDSA. This project by the Department of Public Works and Highways (DPWH) will rehabilitate the full stretch of EDSA and make it a green and walkable highway. We need to change the entire concrete structure of EDSA,” Transportation Secretary Vivencio B. Dizon said at a media briefing on Monday.

The EDSA rebuild project, which will run for two years, will be the highway’s first major rehabilitation since 1980. Around 437,000 vehicles use EDSA every day.

Public Works Secretary Manuel M. Bonoan said the project aims to make Metro Manila’s longest and most congested highway a more pedestrian and commuter-friendly road.

Preparatory works will begin on the night of June 13, while construction will go full blast a week after, Mr. Bonoan said. This will include laying out the sections as the rehabilitation project is intended to be implemented lane by lane.

“The concept of the rebuild project, our deliverables are to rebuild and reconstruct the entire EDSA. We will change the pavement into a new one, in other words we will flip the entire EDSA and adapt the latest technologies on concrete mix,” Mr. Bonoan said.

“We will deploy several contractors simultaneously. Construction will proceed lane by lane.”

Overall, a total of 200 kilometers of lane covering both northbound and southbound of EDSA will be rehabilitated, Mr. Bonoan said, adding that the south portion will be done first, followed by the northbound section next year.

“I do not think we can finish the southbound portion this year because it is already the middle of the year. We will continue the implementation of southbound and northbound until next year, simultaneously,” Mr. Bonoan said.

Starting mid-June, the government will work on the excavation of the existing surface and installation of new concrete, prioritizing the sections of Pasay and Guadalupe.

Mr. Bonoan said the EDSA Bus Lane, which serves nearly 200,000 average daily passengers, will continue to operate during the rehabilitation period.

He said the government is prioritizing the south portion of EDSA due to the country’s anticipated hosting of the Association of Southeast Asian Nations (ASEAN) Summit in 2026 which is expected to be held in the south of Metro Manila.

“Our consideration for this scheme is the ASEAN meeting. We will have to avoid the construction in EDSA during that time,” Mr. Bonoan said.

Traffic management

DoTr’s Mr. Dizon said that San Miguel Corp. (SMC) had agreed to waive the toll fee for some segments of the Skyway Stage 3 during the EDSA rehabilitation period.

“We understand that this temporary arrangement might result in loss of income to SMC, the operator of Skyway. In response, the DoTr and Toll Regulatory Board are exploring options to grant SMC some reprieve, including possible extension of their concession agreement with the government,” he said.

BusinessWorld also sought comment from SMC but it has yet to respond as of the deadline.

“The free toll will begin once the full blast of construction starts, so maybe that is July or August,” Mr. Dizon said.

The DoTr and the Metropolitan Manila Development Authority (MMDA) have also developed their initial traffic mitigation plans which include the deployment of 100 units of bus on EDSA Busway; and more trains at Metro Rail Transit Line 3 (MRT-3).

MMDA Chairman Romando S. Artes said the odd-even scheme for private cars will also be strictly implemented along EDSA for a 24-hour period except on Sundays.

Under this scheme, private cars with plates ending in odd digits will be barred from using EDSA during Mondays, Wednesdays, and Fridays, while vehicles with plate numbers ending in even numbers cannot use EDSA on Tuesdays, Thursdays, and Saturdays.

“With this scheme, we expect a 40% reduction of vehicles in EDSA. The existing coding schemes will continue to be in place for roads outside EDSA,” Mr. Artes said.

Electric vehicles, and hybrid cars are exempted from the number coding scheme, under the Electric Vehicle Industry Development Act (EVIDA) in the Philippines.

Transportation Network Vehicle Service (TNVS) like Grab and inDrive are also exempted from the odd-even scheme on EDSA.

Further, trucks and provincial buses will also be prohibited from using EDSA during 5 a.m. to 10 p.m. starting June 13.

Economic impact

A 2018 Japan International Cooperation Agency (JICA) study had estimated the economic cost of traffic congestion in Metro Manila stood at around PHP 3.5 billion a day.

“EDSA rehabilitation should have been done years ago. It would create temporary pains. I was part of the JICA study (in 2018), and the economic loss is now already bigger than that. It can go down, after the completion of EDSA rehabilitation,” Rene S. Santiago, former president of the Transportation Science Society of the Philippines, said in a Viber message to BusinessWorld.

Manila was the 14^th most traffic congested city in the world, with an average travel time of 32 minutes for an average 10-kilometer distance, according to the latest edition of the TomTom Traffic Index.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said that the closure of parts of EDSA would likely worsen traffic and affect consumer activity.

“The expected traffic disruptions caused by construction, coupled with the odd-even scheme, are likely to discourage individuals from visiting shopping malls, restaurants, and entertainment venues along EDSA. People may prefer to visit establishments outside of congested areas or accessible via alternate routes,” he said in a Viber message.

However, Mr. Rivera said that once the project is completed, it can deliver long-term benefits including improved traffic flow and reduced travel time.

“This will increase productivity and lower vehicle operating costs and fuel consumption. It will also help better road safety and commuter experience; higher business confidence and increased property values along EDSA,” he said.

Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said that the EDSA rehabilitation can have a significant impact on both traffic patterns and economic activities, especially for businesses reliant on foot traffic.

Mr. Arce said this may boost online shopping as consumers prioritize convenience.

“Some businesses may adapt by emphasizing delivery services or offering online shopping options. However, those unable to pivot effectively may suffer more severely,” he said.

Shopping malls and entertainment venues could face lower revenues, Mr. Arce said, noting that these businesses rely on impulse visits and foot traffic.

“Overall, while the rebuild project is necessary for long-term improvements, its short-term disruptions will likely affect consumer habits and business revenues unless proactive steps are taken to manage and mitigate the impacts,” he said. – Ashley Erika O. Jose, Reporter

Monetary policy may not be enough to cushion the economy from the potential impact of trade shocks, the Bangko Sentral ng Pilipinas (BSP) said.

“Today, unprecedented policy shocks are fueling a befuddling kind of uncertainty. Monetary policy alone cannot fully shield the economy from the repercussions of these shocks,” BSP Deputy Governor Zeno Ronald R. Abenoja said at a forum hosted by the Philippine Institute for Development Studies (PIDS) and central bank on Monday.

“Broader, coordinated strategies would indeed help.”

Quoting BSP Governor Eli M. Remolona, Jr., Mr. Abenoja said that trade shocks are “more damaging” than supply shocks.

“Unlike your usual supply shocks, which tend to be transitory, trade shocks have deeper, more persistent effects,” he said.

Last month, US President Donald J. Trump slapped reciprocal tariffs on nearly all its trading partners. However, he suspended the implementation of the higher tariffs until July but kept the baseline 10% tariff.

“In particular, trade shocks affect the capital stock of developing economies. Left unchecked, they can slow growth trajectories and erode decades of hard-won progress,” Mr. Abenoja said.

Mr. Remolona earlier said that central banks have been concerned about the global trade uncertainties, prompting the need to update models and frameworks to better account for these risks.

However, Mr. Abenoja said the Philippines is “well-positioned to manage inflation.”

Headline inflation slowed to an over five-year low to 1.4% in April, bringing the four-month average to 2%.

“This gives us extra degrees of freedom to ease monetary policy which in turn can support growth,” he added.

Mr. Remolona has signaled the possibility of two more rate cuts this year, in “baby steps” or increments of 25 basis points (25 bps).

Last month, the Monetary Board lowered benchmark interest rates by 25 bps to bring the policy rate to 5.5%.

The central bank has so far slashed borrowing costs by a total of 100 bps since it began its easing cycle in August last year.

“The BSP stands ready to do what is necessary to keep inflation steady and maintain the country’s macroeconomic stability,” Mr. Abenoja added.

Industrial policy

Meanwhile, PIDS Emeritus Research Fellow and former Trade Undersecretary Rafaelita M. Aldaba said the government must continue to pursue more structural reforms to benefit from the trade diversion arising from these tariff policies.

“A lot of countries are also strategizing, and hence it’s really important for the Philippines to quickly move swiftly towards the implementation of our strategies. We don’t want to be a passive beneficiary,” she said.

“What we want is for the Philippines to be a strategic player in this global economy,” she added.

Ms. Aldaba said the country is well positioned to take advantage of manufacturing and production relocation.

“These are opportunities, like I said, for relocation production from China and the ASEAN-5 countries can absorb these diverted investments,” she said.

For example, the Philippines and Malaysia are well-positioned to absorb the manufacturing of electronic products.

“Philippines also, we can be a location for light electric devices, appliances, footwear, garments, accessories, and toys,” she said.

Ms. Aldaba said there is a need to continue enhancing industrial policy.

“Our recommendation is, perhaps, to build on the new industrial policy that was started from 2012 onwards. We hope that we’ll be able to integrate this industrial policy with our trade policy.”

“There are two measures that I would like to highlight. One is on industrial policy, and the other is in terms of protecting our exports and improving our industries,” she added.

Ms. Aldaba said it will be vital for the country to be able to “move up the global value chain from final assembly to more high-value stages.”

There is also a need to diversify production and trade partners, she added.

“And in terms of the rules of our trade compliance, this is also very important. Of course, rescaling, upskilling the workforce to make more complex, more advanced production would also be a vital part of the middle elements for us to promote our industries.”

“Two very important elements of our strategy would be the industrial upgrading part and trade defense and monitoring mechanisms,” she added. — Luisa Maria Jacinta C. Jocson

The Bangko Sentral ng Pililipinas (BSP) said it is looking at shifting to a point target for inflation, from the current 2-4% target band, its top official said.

“We’re seriously thinking of just having a point, a target level,” BSP Governor Eli M. Remolona, Jr. told reporters in a press chat on Friday.

“A single number, yes. In the US, it’s just 2%. In many other central banks, it’s just one number,” he added.

In December, the Development Budget Coordination Committee, in consultation with the BSP, set the inflation target at 2-4% from this year until 2028.

A medium-term inflation target helps “strengthen the forward-looking approach to monetary policy formulation with the view of helping anchor inflation expectations to the target,” the central bank earlier said.

Mr. Remolona said the inflation target they are eyeing may be a bit lower than the 3% midpoint of its current target band.

“Maybe 2% is good enough. We don’t know yet. We’re crunching the numbers,” he added.

The target also cannot be too low, Mr. Remolona said, as this has implications on economic output.

“The reason it’s not zero is because in a growing economy, you have to allow relative prices to change. And when you allow relative prices to change, they tend to be sticky downwards.”

“Allowing them to change means some inflation. It constrains the economy if you have too low a target,” he added.

In the past, the central bank had relied on operating targets under a framework for monetary aggregates in its policy decisions, according to a study by the International Monetary Fund (IMF).

The BSP adopted a modified targeting approach in 1995 after inflation spiked to double-digit levels amid a rice supply shortage. This approach focused more on price stability rather than monetary aggregate ceilings.

In 2002, the central bank formally shifted to inflation targeting.

From 2012 to 2014, the target range for inflation was 4% ± 1.0 percentage point. In 2015, the BSP’s inflation target was set at 3% ± 1.0 percentage point and this was applied up until 2022, though the central began using the alternative 2-4% band around this time.

The BSP is currently working with the IMF on studying the shift to a point target for inflation.

“There won’t be an update soon. It was something we asked the IMF to look at. They won’t be able to give us something very soon, they take their time. But I’m comfortable with our band between 2% and 4%.”

The central bank could transition to the point target a year from now at the latest, he added.

RRR cuts

Meanwhile, the BSP chief said reserve requirement ratio (RRR) cuts are unlikely for the rest of the year.

“Maybe (RRR cuts) for next year. Because we’re trying to make the yield curve more reliable, which means managing liquidity in the system better than we have and that the reserve requirement is a factor in that,” Mr. Remolona said.

“So far, we’ve been trying to manage liquidity by issuing our own BSP bills. We’ve been issuing large amounts of BSP bills in an effort to absorb the liquidity in the system.”

As of March, the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions was reduced by 200 basis points (bps) to 5% from the current 7%.

The RRR for digital banks was also lowered by 150 bps to 2.5%, while the ratio for thrift lenders was cut by 100 bps to 0%.

Rural and cooperative banks’ RRR has been at zero since October, the last time the BSP cut reserve requirements.

“Reserve requirement (cuts) expand liquidity that’s in the system. So, we’re trying to manage that,” Mr. Remolona said.

“We might start issuing BSP bills. An alternative to that is selling the Treasury securities that we hold. That has the same effect on liquidity.”

Earlier data from the central bank showed that around 50% of its market operations are done through the BSP bills.

‘De-dollarization’

Meanwhile, Mr. Remolona said that veering away from the dollar as the world’s reserve currency would be a long and slow process.

This amid talks of “de-dollarization” or the shift away from the US dollar amid policy uncertainty from President Donald J. Trump’s administration.

“As you know, it’s been a safe-haven currency for a long time. Every time there’s some tension somewhere in the world, the dollar strengthens. Money moves into the dollar.”

“In theory, the safe-haven advantage of the dollar may be reduced over time. But it’s a slow process. It doesn’t happen right away,” he added.

The dollar index, which measures the greenback against a basket of currencies, hit a three-week trough, Reuters reported.

For the week, the dollar was down 1.9%, on track for its biggest weekly percentage decline since early April.

This after Mr. Trump unleashed his latest trade threats, recommending 50% tariffs on European Union imports from June 1 and considering a 25% tariff on any Apple iPhones made outside the US.

Mr. Remolona noted that the United Kingdom’s top invoicing currency used to be the US dollar and their trade was done through dollars as well.

“Then they had Brexit and their invoicing currency moved to the euro. So, this dominance of the dollar is not permanent. It can be eroded,” he said.

Mr. Remolona also noted the failure to produce an “international currency.”

“There was an effort to make international currency. That hasn’t worked out. So, it’s still not very liquid. Those talks come and go,” he said.

“Before the renminbi, it was the Japanese yen. Didn’t work out. I’m not sure there’s a different strategy. It’s still talk. It might be a long while.” – Luisa Maria Jacinta C. Jocson, Senior Reporter

The International Monetary Fund (IMF) expects the Philippines’ current account deficit to narrow this year.

“The current account deficit is projected to narrow from 3.8% of gross domestic product (GDP) in 2024 to 3.4% of GDP in 2025, supported by weaker commodity prices,” IMF Mission Chief Elif Arbatli Saxegaard said in a statement.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the current account deficit widened by 41.4% to USD17.5 billion last year from USD12.4 billion in 2023. This brought the current account to 3.8% of economic output in 2024 from the 2.8% the year prior.

The central bank expects the current account deficit — which covers transactions involving goods, services, and income — to reach USD19.8 billion this year, equivalent to 3.9% of GDP.

Ms. Saxegaard also noted that while the country’s gross international reserves (GIR) have declined since the record-high in September, the dollar reserve level remains adequate.

The Philippines’ GIR declined by 1.9% to USD104.6 billion as of end-April from USD106.7 billion as of end-March, BSP data showed. Dollar reserves hit a record USD112 billion in September 2024.

Meanwhile, the multilateral institution said it remains critical that the Philippines sticks to its medium-term fiscal consolidation path.

This will also require “sustained and durable efforts to mobilize tax revenues and ensure efficiency of government spending,” it added.

Ms. Saxegaard said the government’s fiscal stance will likely be broadly neutral this year.

“The medium-term fiscal consolidation remains appropriate and should be supported by a sustainable plan to raise tax revenues and implement expenditure reforms to ensure that deficit targets are met and to create more space for priority spending.”

Under the latest Development Budget Coordination Committee (DBCC) figures, the NG capped its deficit ceiling at 5.3% of GDP this year.

“Tax reforms could prioritize raising excise taxes, enhancing VAT efficiency, improving tax administration, and ensuring effective control of tax incentives. Efforts to enhance public financial management and manage fiscal risks should continue.”

“Enhancing capacity at the local government level to execute additional spending responsibilities in line with the higher revenues allocated to them in the decentralization process is critical to support growth,” she added.

Ms. Saxegaard led an IMF team during its meetings in Manila from May 14 to 20.

For the coming months, she said the IMF will continue its dialogue in the context of this year’s Article IV Consultation. — Luisa Maria Jacinta C. Jocson

Cabinet members, including state economic managers, submitted their courtesy resignations on Thursday as part of President Ferdinand R. Marcos, Jr.’s “bold reset” of the government to better meet the needs of Filipinos.

The move comes following the poor performance of administration-backed senatorial candidates in the May 12 midterm elections, and amid global uncertainties due to trade concerns that could threaten the Philippine economy.

The Presidential Communications Office (PCO) said the request for resignations will give Mr. Marcos “elbow room to evaluate the performance of each department and determine who will continue to serve in line with his administration’s recalibrated priorities.”

“With this bold reset, the Marcos administration signals a new phase — sharper, faster, and fully focused on the people’s most pressing needs,” it said.

“It’s time to realign government with the people’s expectations. This is not business as usual,” Mr. Marcos said in the statement. “The people have spoken, and they expect results, not politics, not excuses. We hear them, and we will act.”

Officials will continue to perform their duties until their resignations are accepted, or new appointments are made by the President.

The President’s allies failed to win a majority of Senate seats contested in the May 12 polls, leaving Mr. Marcos facing a divided political and legislative landscape that could thwart his attempts to have an ally succeed him in 2028.

Candidates aligned with Mr. Marcos’ estranged vice-president, Sara Duterte-Carpio, outperformed expectations in the midterms, which many saw as a proxy battle between Marcos and the Duterte camps.

With less than three years in office left, Mr. Marcos is under pressure to deliver results and groom a successor capable of fending off any potential run by the popular Ms. Duterte-Carpio in the 2028 presidential election.

Over 30 Cabinet-level officials tendered their courtesy resignations, including economic managers Finance Secretary Ralph G. Recto, Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan, Budget Secretary Amenah F. Pangandaman, and Special Assistant to the President for Investment and Economic Affairs Frederick D. Go.

Cabinet members said in separate statements that they resigned as they “serve at the pleasure of the President.”

Mr. Recto said he fully supports the planned revamp, adding that Mr. Marcos “carries the heavy burden of leading the nation through complex global and domestic challenges.”

For his part, Mr. Balisacan said, “If deemed necessary, I stand ready to hand over the leadership to someone the President believes can better drive our nation’s development goals.”

“It’s a prerogative of the President. The President can change his team anytime, but I think it’s a good time because it’s [the middle of his term],” he said on the sidelines of the BusinessWorld Economic Forum 2025 on Thursday, adding that his department is also doing an internal assessment.

PCO Undersecretary and Palace Press Officer Clarissa A. Castro said at a news briefing that Mr. Marcos is frustrated with the performance of some of his Cabinet members, but did not specify anyone.

“The President has made it clear that all pending and ongoing projects will not be affected during this transition,” she said. “Work continues uninterrupted for our Cabinet secretaries and government personnel.”

While she gave no timeline, she said the President is acting with urgency.

Asked what priorities the government will focus on moving forward, Ms. Castro said infrastructure and education are on top of the list.

Political move

The directive drew mixed reactions from stakeholders, with some believing that it may have been driven by political concerns.

Arjan P. Aguirre, assistant professor of political science at the Ateneo de Manila University, said the recent polls likely triggered Mr. Marcos’ decision to revamp his Cabinet.

“Being the incumbent, this is something that we can expect as the most logical response to deliver more of what the people want and/or really need,” he said in a Facebook Messenger chat. “This is what I’m sensing as the response of the Marcos government, but again, we have yet to see if this will really lead to real changes or benefits.”

“The bigger effect that we can expect here is the identification of new priorities of the Marcos government — priority projects that target the concerns of the people,” he added.

Josue Raphael J. Cortez, a diplomacy lecturer at the De La Salle-College of St. Benilde, said this recalibration strategy is a timely political move from the Marcos administration.

“This move can be viewed in two ways: first, as a way of projecting that we have a listening government, and second, an implicit conditioning for the 2028 national elections, which will determine whether the ball will still be on the side of the Marcoses, or it will once again pivot towards the Dutertes, despite the issues surrounding the family,” he said in a Facebook Messenger chat.

IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa said the move may be due to Mr. Marcos’ declining approval and trust ratings.

Mr. Marcos has faced a steep decline in public support, according to a March survey by Pulse Asia, with only 25% of Filipinos approving of his performance, down from 42% previously.

In stark contrast, Ms. Duterte-Carpio enjoyed a significantly higher approval rating of 59%.

Sentiment towards the government has soured due in part to a perceived failure to control inflation, a top concern of Filipino households, even though it has been back within the central bank’s 2% to 4% target range since August.

“The ineffectiveness of government efforts to improve the well-being of the majority is most of all due to the nature of the economic policies themselves, which favor short-term corporate profitability and the wealth of politically connected families rather than universal provision of public social services and aiming for real Filipino industrialization to create jobs,” Mr. Africa said in a Viber chat.

He said the government needs to reset policies and not just the Cabinet. “No matter how many times Cabinet members are changed, the public sector and economy won’t be transformed unless real reforms for social and economic transformation are undertaken.”

Philippine Chamber of Commerce and Industry President Eunina V. Mangio said in a statement that the move is surprising as the government “has been performing relatively well in managing the economy,” although progress has been undermined by political issues.

“We are trying to get more investments for the country, especially with the passage of the CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) Act. We want to continue fostering economic growth and investor confidence, and so we hope that the courtesy resignations will bring in accountable and merit-based appointments and appointments done [as soon as possible] to avoid political instability and so as not to derail economic continuity,” Ms. Mangio said.

“We understand the President’s actions and intentions as this happens in business and the private sector. A CEO (chief executive officer) needs to make difficult calls, such as replacing talents, with the primary objective of improving the performance of the organization,” Management Association of the Philippines President Alfredo S. Panlilio said in a statement. “Difficult as it may be, the call of leadership is to make such hard decisions in the interest of establishing meritocracy and encouraging performance. We hope the President will find the appropriate talents for those he decides to replace — people who can effectively execute his government’s plans.”

“We trust that capable, proactive, and committed individuals will be empowered and work together as a cohesive team to execute the nation’s plans to uplift the lives of all Filipinos and move us closer to the outcomes our people deserve.”

Makati Business Club Chairman Edgardo O. Chua told reporters at an event that they are hoping that the Cabinet revamp would not be major as they are generally satisfied with the performance of the current economic team.

“If many of them are replaced, it will be disruptive,” he said. “We are hoping that the President will be able to maintain the good ones.”

Mr. Marcos’ call for courtesy resignations will “enable him to have a free hand in appointing or reappointing people who he believes will deliver in the second half of his term,” he said.

“So, we just hope that the President will be able to quickly announce who will be appointed or reappointed so that there is minimal disruption,” Mr. Chua added. — Chloe Mari A. Hufana with Reuters

The United States’ latest credit rating downgrade could benefit the Philippines and other emerging markets as this could prompt investors to diversify their portfolios.

“The US credit downgrade is negative for US dollar and US dollar-denominated assets but positive for the peso as global funds diversify into non-dollar assets, including emerging market asset classes. The Philippines is part of the emerging market universe,” Cristina S. Ulang, head of research at First Metro Investment Corp., said.

“It’s possible the downgrade could lead some investors to diversify away from dollar assets,” Luis A. Limlingan, head of sales at Regina Capital Development Corp., said in a Viber message. “This may create an opportunity for markets like the Philippines, but any shift would depend on broader risk sentiment and how local fundamentals compare with other emerging markets.”

Moody’s Ratings last week cut the US’ long-term issuer and senior unsecured ratings to “Aa1” from “Aaa,” revising its outlook to “stable” from “negative.”

The debt watcher said this downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”

The move stripped the US of its last triple-A rating from the big three credit raters. In 2011, S&P Global Ratings cut the US’ sovereign long-term credit rating to “AA+” from its top investment grade of “AAA.” Fitch Ratings in 2023 also downgraded the country’s rating to “AA+” from “AAA.”

The Philippines holds investment-grade ratings from all three debt watchers. S&P in November last year kept its “BBB+” long-term credit rating for the country, a notch below the “A” level grade targeted by the government, and raised its outlook to positive.

Meanwhile, Fitch and Moody’s rate the Philippines at “BBB” and “Baa2,” respectively, with stable outlooks, which are a level below S&P’s rating. Fitch affirmed its long-term rating in April, while Moody’s latest sovereign rating action was announced in August 2024.

The Philippines’ manageable debt-to-gross domestic product (GDP) ratio could make it a preferred option for investors, Ms. Ulang said.

The government is seeking to bring the debt-to-GDP ratio down to 60.4% by the end of 2025, and to 56.3% by 2028. Debt as a share of GDP stood at 62% at the end of the first quarter.

BDO Senior Vice-President and Trust and Investments Group Head Frederico Rafael D. Ocampo said the fiscal concerns cited by Moody’s for the rating downgrade could cause US assets to perform weaker in the near term as investors look for other markets.

“While the immediate reaction following the announcement was a sell-off across most US assets, the move has been partially retraced on investors looking to take advantage of cheap valuations,” Mr. Ocampo said in a Viber message.

“Looking ahead, we anticipate US-denominated portfolios to trade weaker following a broader de-risking in US assets in the near term, especially if the US government fails to address the more systemic issue of a growing deficit funded by more borrowings.”

Mr. Ocampo added that elevated long-term rates could “add pressure on portfolios with substantial exposures in the tail end of the yield curve, such as those of insurance companies and pension funds.”

Borrowing costs

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. likewise said that higher rates could affect borrowing costs.

“Investors may demand higher yields on US government debt to compensate for the perceived increase in risk,” Mr. Neri said in a Viber message. “This could impact local corporates in the Philippines with dollar-denominated debt, as they may face higher borrowing costs.”

However, the rise in interest rates could be marginal as the US’ credit rating is still high, even with the latest downgrade.

“In addition, local corporates or investors holding US Treasuries could see a decline in the value of their holdings if yields rise, since bond prices typically move inversely with interest rates,” he said.

“Spillover effects on emerging markets in general might be on higher borrowing costs when there is a demand for higher premiums with higher risk due to the downgrade pushing rates relatively higher,” Mr. Limlingan added.

Meanwhile, Leonardo A. Lanzona, an economics professor at Ateneo de Manila University, said that while the downgrade could trigger a shift away from US risk assets, the Philippines may not necessarily be the first choice for investors.

“Since the Philippines is tied to the US, I don’t think (there) will be investing in the Philippines. Countries that have divested from US assets are more likely to gain. Canada and Europe may have done so already,” he said in an e-mail.

“Filipino investors can shift their investments in other countries, although the options can be limited to China.”

Mr. Lanzona added that the US economic concerns flagged by Moody’s would also have a negative impact on the Philippines.

“This can have both real and financial effects on the country. In the real sense, the country will be affected since the US is the country’s top importer.”

The Philippines should implement economic policies that “favor domestic production and greater protection for the workers,” he said, especially amid global uncertainties.

“Enhancing technological innovation within the country and greater flexibility for firms and workers should be given priority,” Mr. Lanzona added. — Luisa Maria Jacinta C. Jocson and Aaron Michael C. Sy