Fitch affirms Philippines' 'BBB' credit rating, stable outlook

Fitch Ratings has affirmed the Philippines' long-term foreign-currency issuer default rating (IDR) at 'BBB' with a stable outlook.

The 'BBB' rating and stable outlook reflect the Philippines' strong medium-term growth, which supports a gradual reduction in government debt as a percentage of gross domestic product, and the large size of the economy relative to 'BBB' peers, Fitch said.

The rating is constrained by low GDP per head, despite an upward trend. Governance standards are weaker than those of 'BBB' peers, though Fitch believes World Bank Governance Indicator (WBGI) scores somewhat overstate this, the ratings agency said.

“We expect the Philippines' economy to expand by 5.6% in 2025, broadly in line with 2023-2024, fueled by the traditional growth drivers of large public investments in infrastructure, services exports and remittance-funded private consumption,” Fitch said.

Private demand should be supported by easing inflation and interest rates. However, domestic political uncertainty could affect investment, while global trade tensions will likely drag on growth, in particular indirectly through weaker global demand, the agency added.

Fitch noted the Philippines is a relatively closed economy, with goods exports of only about 12% of GDP in 2024, mostly electronics and machinery, based on balance of payments statistics. More than 16% of goods exports were to the U.S.

“If the reciprocal tariffs announced by the U.S. in April come into effect, the relatively low tariff rate of 17% applicable to the Philippines could be an advantage compared with regional peers. The Philippines' terms of trade could benefit from lower commodity prices or diversion of Chinese exports,” Fitch said.

The agency expects real GDP growth to pick up to over 6% in the medium term, more than double the projected 'BBB' median but broadly in line with the Philippines' growth in the decade before the COVID-19 pandemic.

“Our forecast reflects a payoff from investments in infrastructure and a series of structural reforms in recent years to liberalize the economy and foster trade and investment, including through public-private partnerships. Technological change poses risks to the Philippines' large outsourcing sector, although it is adapting,” Fitch said.

Fitch anticipates the general government (GG) budget deficit will narrow to 3.6% of GDP by 2026, after an estimated 4.6% in 2024 and a peak of 5.4% in 2022. The improvement will be driven mainly by spending efficiencies and improved tax collection, with limited new tax measures planned, it said.

This is consistent with a narrowing of the central government (CG) deficit to 4.9% of GDP by 2026, marginally wider than the government's target, Fitch added. The spike in deficits in 2020-2022 reflected a mix of higher capital spending, interest costs, and primary current spending in priority areas like healthcare, education and social support.