Moody’s affirms Philippines Baa2 rating with stable outlook

The debt watcher said the rating affirmation reflects expectations that the country’s fiscal metrics would stabilize over the next two years as economic growth gradually recovers from the current slowdown and the government remains committed to reducing its budget deficit.

STAR / File

MANILA, Philippines — Moody’s Ratings has affirmed the Philippines’ investment-grade credit rating at Baa2 with a stable outlook, but warned that weaker economic growth, deteriorating debt affordability and rising political uncertainty could test the country’s fiscal consolidation efforts.

The debt watcher said the rating affirmation reflects expectations that the country’s fiscal metrics would stabilize over the next two years as economic growth gradually recovers from the current slowdown and the government remains committed to reducing its budget deficit.

It noted that the Philippines continues to benefit from strong access to domestic and international funding markets, as well as sufficient foreign exchange reserves to weather volatility in global capital flows.

However, these strengths are being weighed against weakening debt affordability, institutional constraints, relatively low income levels and the country’s high exposure to physical climate risks.

Moody’s expects Philippine gross domestic product (GDP) growth to slow to around 3.6 percent this year, well below the economy’s medium-term potential, before accelerating to about 5.3 percent in 2027.

The forecast reflects the impact of higher food and energy prices following the conflict in the Middle East, as well as a sharp contraction in public investment after the probe into flood-control projects.

On the external front, the rating agency expects the current account deficit to widen to around four percent of GDP this year due to higher energy imports and the peso’s depreciation before narrowing as energy prices ease and export demand improves.

Moody’s also affirmed the Baa2 rating of the Bangko Sentral ng Pilipinas, saying the central bank’s credit quality remains closely aligned with that of the national government. The BSP’s outlook remains stable.