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S&P Global Ratings affirmed the Philippines’ investment grade rating on Tuesday and raised its outlook to “positive” from “stable” to reflect the economy’s strong growth potential amid improved institutional strength on the back of “effective policy making.”

The debt watcher on Tuesday affirmed its “BBB+” long-term credit rating for the country, which is a notch below the “A” level grade targeted by the government. It also kept its “A-2” short-term rating for the Philippines.

Still, S&P Global raised its rating outlook to “positive” from “stable.” A positive outlook means the Philippines’ credit rating could be raised over the next two years if improvements are sustained.

“Our improved institutional assessment drives our positive outlook on the Philippines. We believe the strengthening of the country’s institutional settings, which had contributed to a significant enhancement in the sovereign’s credit metrics over the past decade, will continue,” S&P Global said in a statement. “This is demonstrated by the strong economic recovery in the last two years, and ongoing reforms to support business and investing conditions.”

“This improvement could lead to stronger sovereign support over the next 12-24 months if the Philippines’ economy maintains its external strength, healthy growth rates, and that fiscal performance will strengthen.”

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said the debt watcher’s upgraded outlook “reflects the work the government has done to improve the economic, fiscal, and monetary environment, enabling strong growth to continue.”

Finance Secretary Ralph G. Recto likewise said this “reaffirms our stable economic and political environment and that we are on track to achieve a growth-enhancing fiscal consolidation.”

“We have a comprehensive ‘Road to A’ initiative to ensure that we secure more upgrades soon,” he added.

S&P Global said the Philippines’ sovereign rating reflects the economy’s “above-average growth potential.”

“This strength underpins constructive development outcomes. The ratings also benefit from the country’s strong external position,” it added.

For the first nine months of the year, the Philippine economy expanded by 5.8%, slightly below the government’s goal of 6-7% gross domestic product (GDP) growth this year.

The government is targeting 6.5-7.5% GDP growth next year and 6.5-8% growth from 2026 to 2028.

S&P Global expects Philippine GDP growth to average 5.5% this year, driven by exports and easing inflationary pressures.

“Ongoing reform on the business, investment, and tax fronts should benefit growth over the next three to four years.”

The Philippine economy will likely grow at an average of 6.2% a year over the next three years, it added.

“Solid household and corporate balance sheets, and sizable remittance inflows underpin the Philippine economy’s positive medium-term trajectory,” S&P Global said.

“Ongoing efforts to address infrastructure gaps, and improvements in the business climate through regulatory and tax reforms should also support growth in economic productivity.”

Fiscal reforms

The government’s fiscal reforms have also boosted the economic outlook, the credit rater said.

“We believe that effective policy making in the Philippines has delivered structural improvements to the country’s credit metrics. Fiscal reforms have raised government revenue as a share of GDP and helped to fund public investment. Improved infrastructure and policy environment have helped to keep economic growth strong in much of the past decade,” it said.

“The government’s fiscal and debt settings had deteriorated due to the economic fallout from the pandemic and the associated extraordinary policy responses. Fiscal buffers built through a long record of prudence before the pandemic thinned, but consolidation has begun with the economic recovery well on track. The Philippines’ low GDP per capita relative to other investment-grade sovereigns temper these strengths,” it added.

Latest data from the Treasury showed that the budget deficit narrowed by 1.35% to P970.2 billion in the first nine months.

The government is seeking to bring the deficit-to-GDP ratio to 5.6% this year and further down to 3.7% by 2028.

“The Philippine government has generally enacted effective and prudent fiscal policies over the past decade. Improvements to the quality of expenditure, manageable fiscal deficits, and relatively low general government indebtedness testify to this,” S&P Global said.

However, the credit rater said restoring fiscal and debt settings to pre-pandemic levels will be challenging and likely be a gradual process.

“The ongoing economic recovery in the Philippines should facilitate a reduction in the general government deficit and a further stabilization of the debt burden,” it said. “It will, however, take several years for fiscal balances to recover to pre-pandemic levels given the eroded fiscal headroom.”

S&P Global added that it expects the country’s net general government debt to gradually decline amid continued fiscal consolidation.

Moving forward, the debt watcher said it could upgrade the Philippines’ credit rating if the current account deficit and fiscal position remain well-managed.

“We may raise the ratings if our expectations of current account deficits tapering over the forecast period are realized such that buffers in the Philippines’ narrow net external asset position are maintained and if the government achieves more rapid fiscal consolidation,” it said.

S&P Global expects the country’s current account deficit to persist but at “modest levels.”

The BSP estimates the current account deficit to reach $6.8 billion this year, equivalent to 1.5% of GDP. In the first half of the year, the country’s current account deficit stood at $7.1 billion, accounting for 3.2% of economic output.

On the other hand, the rating outlook could be revised down to “stable” if economic recovery slows down or if the government’s fiscal and debt positions deteriorate.

“If persistently large current account deficits lead to a structural weakening of the Philippines’ external balance sheet, we would also revise the outlook to stable,” S&P Global added. – Luisa Maria Jacinta C. Jocson, Reporter

The country is still on track to meet the government’s gross domestic product (GDP) growth targets for this year and the next, the Department of Finance and Department of Budget and Management said.

“For growth, I think achievable, of course. This year, it may be nearer the lower end. For next year, it’s still achievable, 6.5%,” Finance Undersecretary and Chief Economist Domini S. Velasquez told reporters on the sidelines of the BusinessWorld Forecast 2025 forum on Tuesday.

The government is targeting 6-7% GDP growth this year and 6.5-7.5% expansion for 2025.

Separately, Budget Secretary Amenah F. Pangandaman said that the economic team is still confident that they can meet their growth goals.

“As of now, we’re still confident that we will be able to hit our targets, so we will see,” she told reporters on the sidelines of an event in Makati City.

The government is working to expedite the release of the budget and encourage agencies to spend for programs and projects, which would contribute to growth, she said.

In the first nine months, Philippine GDP growth averaged 5.8%. To meet the lower end of this year’s 6-7% target, the economy would need to grow by at least 6.5% in the fourth quarter.

The Development Budget Coordination Committee (DBCC) is set to have its next review in December.

The DBCC last met in June and kept its growth targets for this year up to 2028 but recalibrated its fiscal program.

Ms. Pangandaman said the DBCC will “most likely” revise its macroeconomic assumptions next month but noted that these changes would be “very minimal.”

“Actually, I’m not sure if they can take into consideration the new administration of President (Donald J.) Trump. I think it’s also nice to look at it. That’s what the technical working group is looking at.”

They are also studying the DBCC’s peso assumptions and may consider the incoming Trump administration’s proposed policies and its expected impact on the currency, she said.

“We’re studying that. The recommendation is the previous numbers we saw before. The new administration of President Trump, among others,” Ms. Pangandaman said.

On Tuesday, the peso slipped by a centavo to close at its record low of P59 per dollar, which it last hit on Nov. 21.

The peso sank to the P58 level in late October amid the greenback’s strength in the run-up to the US presidential election.

Mr. Trump’s win in the Nov. 5 vote caused the local unit to hit multi-month lows and eventually return to its all-time trough of P59 last seen in October 2022 as the dollar continued to soar on safe-haven demand as global markets await the new administration’s policy direction.

The DBCC expects the peso to range from P56-58 per dollar this year.

For her part, Ms. Velasquez said reforms such as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act will help drive investments and fuel growth.

Earlier this month, President Ferdinand R. Marcos, Jr. signed into law the CREATE MORE Act, which expands fiscal incentives and lowers corporate income tax on certain foreign enterprises.

Ms. Pangandaman said the economic team will likely conduct international roadshows to promote CREATE MORE to investors.

“We’re just finishing the implementing rules and regulations. By next year probably, we have a chance to go out and promote CREATE MORE.”

These roadshows will likely take place in the United States, Japan, Korea and the Middle East, she said.

“Maybe the US because there’s a new administration and then new policies in terms of their investment decisions,” Ms. Pangandaman added. — Luisa Maria Jacinta C. Jocson

Sustained economic growth the next few years and targeted investments could help the Philippines reach its “ambitious” goal to become a trillion-dollar economy despite domestic and external challenges.

“The path to a trillion-dollar economy is not easy. It’s a very ambitious target. But it is feasible if the Philippines were to again invest in capabilities to better equip for a competitive global economy,” Zafer Mustafaoğlu, World Bank country director for the Philippines, Malaysia, and Brunei, said in a speech at the BusinessWorld Forecast 2025 forum on Tuesday.

Reaching this goal would require “significant annual growth” between now and 2033, Mr. Mustafaoğlu said.

“But it’s not the matter of whether it’s 2033 or 2035, but the point is more on sustaining that growth and chasing that potential to reach the trillion-dollar economy,” he added.

The World Bank expects the Philippines to grow by an average of 6% from 2024 to 2026. In the first nine months, Philippine gross domestic product expanded by 5.8%, slightly below the government’s goal of 6-7% growth this year.

To ensure sustained growth, the country must build an enabling environment for investments, address climate change to reduce its economic impact, and boost the economy’s resilience amid external challenges such as geopolitical risks and protectionism, Mr. Mustafaoğlu said.

The government also needs to “collect revenues effectively, increase spending efficiency, and also mobilize private sector resources to address those global challenges,” he said.

The Philippines must also invest in boosting employment, especially in productive sectors like construction and manufacturing, he added.

Jesus Felipe, a distinguished professor at the De La Salle University Carlos L. Tiu School of Economics, likewise said that becoming a trillion-dollar economy requires “a very strong level of growth.”

“That requires investing in your human capital, strengthening your market, flexibility, competition, investing in digital,” he said.

Solid fundamentals

Pavit Ramachandran, country director for the Philippines at the Asian Development Bank (ADB), said while the country’s growth trajectory remains “very promising,” risks to the outlook remain, such as an unexpected slowdown in major economies, geopolitical tensions, and supply chain disruptions.

ADB expects the Philippine economy to grow by 6% this year and 6.2% in 2025, driven by strong domestic demand, public investment, and infrastructure development.

“The global environment today is presenting unprecedented challenges for highly integrated economies like the Philippines,” he said in a speech delivered via video. “Shifts in trade policies and foreign relations among major advanced economies, such as the United States, Japan, the Europe area, alongside the People’s Republic of China, are reshaping supply chains and investment patterns.”

“Yet, these interdependencies are vulnerable to geopolitical and geoeconomic challenges, which often spill over into commodity and financial markets, affecting investor confidence and consumer sentiment,” he said.

The Philippines is well-positioned to navigate these challenges amid its solid macroeconomic fundamentals, Mr. Ramachandran said.

“The government’s focus on market mobilization, improving the investment climate, and enhancing public financial management again provides a strong foundation for such growth,” he said.

Department of Finance Undersecretary and Chief Economist Domini S. Velasquez said the government’s fiscal consolidation efforts will allow it to increase investments in its priority sectors.

“The Philippines is poised to ascend to upper middle-income in 2025, signifying a stronger and more prosperous economy,” Ms. Velasquez said. “We are steadily reducing our deficit and debt in a way that enables us to finance long-term investments, Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act, and better jobs, uplift incomes, and ultimately reach our goal of reducing our poverty rate to single-digit levels by 2028.”

The government is also looking to enact reforms to increase foreign direct investments, such as reducing the tax on stock transactions to help boost the Philippine capital markets, she added.

Miguel G. Belmonte, president and chief executive officer of BusinessWorld Publishing Corp., said building a supportive policy environment that encourages investment and fosters resilience is needed to ensure sustained and inclusive Philippine economic growth.

“The government has already made strides and reforms aimed at creating a more favorable business environment for investors. And we’re off to a good start,” Mr. Belmonte said. “With fiscal discipline and measures to secure food and energy supplies, we are better positioned to mitigate shocks and maintain stability.”

“We have a bold but achievable vision to transform the Philippines into a trillion-dollar economy. While it’s not going to be easy to fulfill our goals, especially when challenges loom so large, the dream of sustained and meaningful growth in 2025 is well within our grasp.” – Aubrey Rose A. Inosante, Reporter

Eva P. Gozon, 36, withdrew her life insurance fund and combined it with her bonus from her job as an outsourcing agent to fund her fried siopao business in Pasay City near the Philippine capital.

She considered applying for a small business loan worth PHP 200,000 at a local bank, but decided against it due to high interest rates. “I got scared,” she told BusinessWorld by telephone.

“After much study, I found out that I would have had to use all my profits to pay for the loan,” she said. “There were also too many paper requirements. It really wasn’t worth it.”

Philippine banks have failed to lend 10% of their loan portfolio to micro-, small- and medium-sized enterprises (MSME), as required by law, and would rather pay the fine than risk not being paid.

Data from the Philippine central bank showed that as of end-June, banks only lent 4.52% or PHP 488.13 billion of their PHP 10.8-trillion loan portfolio to MSMEs, which are known for their crucial role in fostering broad-based development, acting as the backbone of the economy.

These firms account for more than 99% of all businesses in the Philippines and provide jobs to many Filipinos, making them a key player in shaping the economic landscape.

Under the law, 8% of banking loans must go to micro and small enterprises, and 2% to medium-sized firms. But as of end-June, banks only lent 1.82% of their loans to micro and small enterprises and 2.7% to medium-sized businesses.

Banks barely know the owners and the nature of their businesses and consider them risky clients, Diwa C. Guinigundo, Philippine analyst at GlobalSource Partners and a former deputy governor at the Bangko Sentral ng Pilipinas (BSP), said in a Viber message.

“They have little knowledge about small businesses’ track record and when information is limited, banks would rather pay their fines than expose themselves to what they consider to be risky clients,” he said.

MSMEs have a limited financial history and a “higher vulnerability to economic downturns,” said Ben Joshua A. Baltazar, president and chief executive officer at the state-owned Credit Information Corp.

“This was further exacerbated by banks’ experience during and after the pandemic when some MSMEs were not able to repay loans on time due to lockdowns and physical distancing, which affected the businesses’ profitability,” he said in an e-mail.

There is also an information gap on smaller firms’ credit records, Mr. Baltazar said, adding that MSMEs’ financial history and collaterals should be properly documented so banks could use these as the basis for their loans.

“Banks want to minimize nonperforming loans while increasing loans to the creditworthy,” he said. “However, they are unable to collect this information reliably and MSMEs have no established method to prove good credit behavior.”

Meanwhile, small entrepreneurs are reluctant to avail themselves of a loan due to high interest rates especially if they lack collateral, Mr. Baltazar said.

“Being a segment where businesses are thriving or transitioning, many MSMEs are afraid of applying for a loan, anticipating similar requirements and processes as that of the commercial loan facilities,” BDO Network Bank, the country’s biggest rural bank, said in an e-mailed reply to questions.

When applying for a bank loan, MSMEs are usually asked to prepare personal financial and bank statements, references from business networks and a risk assessment, BDO Unibank, Inc.’s rural banking arm pointed out.

‘Asymmetry of informantion’

In the first half, universal and commercial banks lent PHP 134.1 billion to micro and small enterprises, or 1.35% of their total loans, and PHP 235.8 billion or 2.38% of their total lending to medium enterprises. Thrift banks allotted 3.74% of their loans to micro and small enterprises, and 5.39% to medium-sized businesses.

Digital banks lent PHP 250 million or 1.41% of their total credits to micro and small businesses, and PHP 30 million or 0.16% to medium enterprises, BSP data showed.

On the other hand, rural and cooperative lenders have been more generous in lending to MSMEs, probably because they are more familiar with their conditions on the ground.

During the period, these institutions released loans worth PHP 37.9 billion to micro and small enterprises, equivalent to 17.61% of their total credit books. Their loans to medium enterprises hit PHP 19.9 billion or 9.26% of the total. These are both well beyond the minimums required by law.

“There is asymmetry of information between the big banks and smaller institutions like rural banks, which are mostly compliant,” Mr. Guinigundo said. “They are on the ground, and they know their clients.”

“A good credit information bureau that caters to all banks would provide a level playing field for both banks and their small business clients,” he added.

Banks need “data-driven and risk-based” lending to expand their MSME base, Mr. Baltazar said. “The demand-side barriers that continue to hamper MSMEs’ access to finance are lenders’ conservative high interest rates and collateral requirements, which deter borrowers.”

Mr. Guinigundo noted that if banks were more transparent about their lending policies, and small business clients too about their creditworthiness, “perhaps a better pricing discovery can be established, leading to more loans to small business and more decent interest rates on the loans.”

Banks also have the duty to diversify their financial products through flexible payment options and timelines to attract more MSME borrowers.

BDO Network Bank said big banks that deal with MSMEs are usually focused on lending under the “term loan” format — a fixed amount is borrowed for a specified period, typically ranging from one to 10 years, to be paid in regular installments over time.

“Diversifying into other credit options such as providing lines of credit that are revolving or loans that mature quickly for easy rollover will further support MSME growth,” it added.

Banks should also have flexible collateral requirements and financial literacy programs to make their loan products less intimidating to small firms. “Banks should have the ability to provide secured loans with collateral requirements that are more flexible compared with the conventional secured loan standards.”

But Anna Angeli B. Alberto, 41, could not be bothered by banks’ paper requirements. Instead of going to the bank, she used her credit card to set up a stall for her frozen meat and cooked rice meal business inside a food court at SOMO Market in Bacoor, Cavite province.

“It’s hassle-free,” she said by phone. “There are no requirements needed, and the loan release is instant.” – Beatriz Marie D. Cruz, Reporter

State spending on infrastructure went up by 16.9% in September fueled by disbursements for finished transport projects, the Department of Budget and Management (DBM) said.

In the latest National Government disbursement report, spending on infrastructure and other capital outlays rose by PHP 19.8 billion to PHP 137.1 billion in September from PHP 117.3 billion in the same month last year.

Month on month, infrastructure spending went up by 26.24% from PHP 108.6 billion in August.

The DBM attributed the uptick in September disbursement to the payment for completed road network and bridge programs of the Department of Public Works and Highways (DPWH).

Higher disbursements were also made for various foreign-assisted projects of the Department of Transportation.

It also noted capital outlays for local counterpart requirements for implementing the Metro Manila Subway Project Phase 1, North-South Commuter Railway System, and the Davao Public Transport Modernization Project.

Funds were also used for the Department of National Defense’s (DND) Armed Forces of the Philippines modernization program, as well as the construction and repair of justice halls nationwide and implementation of the Department of Education’s computerization program.

In the January-to-September period, infrastructure spending rose by 14.6% to PHP 982.4 billion from PHP 857.6 billion in the same period in 2023.

“The robust spending growth for the period was largely credited… to infrastructure and other capital outlays with significant disbursements recorded in the DPWH for its banner infrastructure projects and the DND for its defense modernization projects,” the DBM said.

Overall infrastructure disbursements, which included transfers to local government units and subsidies to government-owned and -controlled corporations, went up by 12% to PHP 1.14 trillion as of end-September.

“This was equivalent to 6.1% of GDP (gross domestic product) vis-a-vis 5.9% outturn for the same period last year and the 5.6% full-year target this year,” it said.

Philip Arnold “Randy” P. Tuaño, dean of the Ateneo School of Government, said the increase in infrastructure spending is likely to be sustained in the short term.

“(The increase was) due to a significant balance from various budget sources that remain available for release, and the prioritization of large-scale transport projects such as the Metro Manila Subway,” Mr. Tuaño said in an e-mail over the weekend.

He also expects a surge in infrastructure spending given that the 2025 midterm election is five months away.

“It should first be noted that infrastructure spending year on year had increased, and this will further increase going into the 2025 national budget,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in a Viber message. “This is the underlying reason for spending improvements this year.”

The government’s infrastructure program for this year is set at PHP 1.472 trillion, equivalent to 5.6% of GDP.

Mr. Ridon urged infrastructure agencies to improve absorptive capacity “particularly as 2025 is an election year in which the law mandates a suspension of project implementation for a specific period of time.”

“The challenges are that the absorption and burn rate by our key agencies, especially in infrastructure and agriculture, have been quite low,” former National Economic and Development Authority Secretary Cielito F. Habito, said at a conference at the University of the Philippines School of Economics on Friday.

Mr. Habito raised that there have been “questionable priorities” on allocations and utilization in some sectors.

“We allocate a lot of budget but it turns out it can’t be spent within the period it was meant to be used,” he said in mixed English and Filipino.

“This is a very important issue in our fiscal policy in general. It’s not so much the fiscal policy, but the implementation of the fiscal policies in that sense.”

Mr. Habito also mentioned the propensity of DPWH to “reblock” roads, calling it a “seemingly misplaced allocation of the budgets.”

He also said the government needs more public-private partnership types of projects given the shortage of public funds. — Aubrey Rose A. Inosante

The government is now crafting an improved version of the bill seeking to reform the pension system for military and uniformed personnel (MUP), Department of Budget and Management (DBM) Secretary Amenah F. Pangandaman said.

“MUP is not dead,” she said during the Fiscal Policy Conference on Friday last week.

“It’s a different version from what Secretary Ben [Diokno] has intended from the very beginning. Hopefully we’ll be able to come up with a nice version that will still be a bit better version than what was expected.”

Ms. Pangandaman made the statement after former Finance chief Benjamin E. Diokno said he does not think the current version of MUP reform is likely to make a difference.

“I think the military pension bill is dead… The measure that they’re coming up with is not what we wanted. It won’t make any much difference. In fact, it might worsen the situation,” Mr. Diokno said.

The Department of Finance (DoF) under Mr. Diokno had earlier pushed for a version of the bill that required contributions from all active personnel and new entrants and removed the full indexation of pensions.

Mr. Diokno had previously insisted that there is a need to overhaul the MUP pension system, noting that there is a risk of “fiscal collapse.”

Last year, the House of Representatives approved a version of the MUP reform bill, which does not require mandatory contributions from active personnel. The House version also provides for the automatic indexation of MUP pensions at 100% of the increase in the base pay of active personnel.

“Discussions are still ongoing, there will be updating. There is still no discussion but it will be dependent on the end of the 19^th Congress and beginning of the 20^th Congress,” Budget Undersecretary and Principal Economist Joselito R. Basilio told BusinessWorld on the sidelines of a forum.

In an interview with BusinessWorld, Finance Secretary Ralph G. Recto said “there is no update” on the MUP bill.

“Chances are there will be no bill on the MUP,” he said on the sidelines of a Senate budget hearing on Nov. 6.

Mr. Recto pushed for the changes in the pension scheme of the MUP but only for new entrants.

The Senate version of the MUP reform bill has been awaiting second reading approval since November 2023.

Senate Bill No. 2501 seeks to set monthly retirement pay at 50% of the base pay for the last position held by retired MUPs. It also requires new MUPs to contribute to the new pension fund system.

Under the Senate bill, members of the military would be required to contribute 7% of their base monthly salary, with the National Government contributing 14%.

The House version, on the other hand, sets a member contribution rate of 9% of monthly salary for new entrants and a 12% top-up form the government.

“The ideal is, or the standard is GSIS (Government Service Insurance System) — 9% and 11%. (The standard should be) 21-24% to make it sustainable and to have a good actuarial life,” Mr. Basilio said.

“That’s the idea. So, things would play around that. The contribution can be 5-4%.”

The MUP covers eight agencies such as the Armed Forces of the Philippines, the Philippine National Police, Philippine Coast Guard, Bureau of Fire Protection, Bureau of Jail Management and Penology, Bureau of Corrections, the National Mapping and Resource Information Authority and Philippine Veterans Affairs Office. – Aubrey Rose A. Inosante, Reporter