THE ongoing impeachment proceedings involving Vice President Sara Duterte and the run-up to the 2028 presidential elections could weigh on confidence, reform implementation and the passage of planned revenue measures, Moody’s Ratings warned.
Despite Moody’s affirmation of the Philippines’s ‘Baa2’ investment-grade credit rating and keeping its outlook stable, it said political noise could pose risks to the government’s fiscal consolidation efforts if it delays reforms or undermines investor confidence.
‘A reversal or stalling of the reforms underpinning prior gains in economic and fiscal strength-including from political developments weighing on policymaking-or a material erosion in institutions and governance strength would put downward pressure on the rating,’ the ratings agency said.
With the government announcing a broader tax package, Moody’s noted that offsetting revenue measures have yet to be legislated and any delay or dilution could slow fiscal consolidation.
A more pronounced deterioration in fiscal and government debt metrics relative to peers, such as if the current slowdown continues to erode medium-term growth potential or if the growing debt stock cannot be arrested, could likewise lead to a rating downgrade, Moody’s added.
‘Nevertheless, a material shift in overall policy direction appears unlikely given that most major economic reforms have already been legislated and the focus is increasingly on execution,’ it noted.
The Department of Finance (DOF) said Moody’s affirmation reflects the resilience of the Philippine economy’s underlying fundamentals, citing its strong access to domestic and international funding markets and sufficient foreign-currency reserves to weather global capital flow volatility.
‘We welcome the stable outlook credit-rating affirmation, even as the world deals with real headwinds. Moody’s assessment confirms our strong macroeconomic fundamentals, and that the reforms we’ve put in place are working,’ Finance Secretary Frederick D. Go was quoted in a statement as saying.
The Bangko Sentral ng Pilipinas (BSP) also welcomed Moody’s affirmation, which recognizes the economy’s ability to withstand global economic headwinds.
‘On the part of the BSP, we will continue working to bring inflation back close to target, safeguard the soundness of the country’s banking system, promote a safe and efficient payments and settlements system, and prudently manage the country’s international reserves,’ it said in a separate statement.
Moody’s also noted the Bureau of the Treasury’s ‘proactive’ liability management, which lengthens average maturity and maintains a predominantly fixed-rate, local-currency stock, to continue in mitigating refinancing and interest-rate risks.
‘The affirmation reinforces that we are on the right track in managing the National Government’s debt portfolio and strengthening our fiscal position,’ National Treasurer Sharon P. Almanza was quoted in a separate statement as saying.
‘Our objective is to sustain this progress and, over time, move up the credit rating ladder toward our coveted A rating,’ she added, noting that the Treasury will continue to pursue prudent fiscal and debt management policies aimed at strengthening the government’s fiscal position and preserving investor confidence.
Moody’s said it expects fiscal consolidation to stay on track, as the government’s response to recent energy shocks has been measured.
Credit upgrade if…
A credit rating upgrade would be possible if the Philippines sustains a record of fiscal consolidation that puts government debt on a firm downward trajectory and reverses the deterioration in debt affordability.
Stronger growth that lifts the economy’s medium-term potential through higher private investment and productivity gains would also be credit positive, it added.
Moody’s expects the fiscal deficit to widen to around 4 percent of gross domestic product this year on higher energy imports and peso depreciation, before narrowing as energy prices ease and export demand firms.