By Katherine K. Chan, Reporter
THE PHILIPPINES faces credit risks because the widening conflict in the Middle East, especially if prolonged, could strain the country’s oil imports, overseas Filipinos’ remittances, and the peso, Fitch Rankings said.
In a commentary posted on Saturday, the debt watcher said emerging markets including the Philippines could see a “substantial impact” on their credit standing if the Strait of Hormuz stays closed for over a month.
“The Iran conflict could raise additional challenges for some emerging market sovereigns, through such channels as energy imports, remittances, fiscal subsidies, exchange rates and access to international finance,” Fitch said.
“Under our baseline, by which the effective closure of the Strait of Hormuz lasts lower than a month and major damage to the region’s oil production infrastructure is avoided, risks to emerging market rankings must be contained, but an extended closure or more sustained effects may lead to a more substantial impact,” it added.
Fitch affirmed its “BBB” long-term foreign currency issuer default rating and “stable” outlook for the Philippines in April last yr.
A “stable” outlook means the Philippines will likely maintain its rating in the following 18 to 24 months.
For the reason that start of america and Israel’s attacks on Iran late last month, the Strait of Hormuz has been shut down, raising concerns over oil trade from the region as experts have warned that any disruption within the vital chokepoint could push fuel prices up globally.
Nearly a fifth of the world’s oil supply, including over 90% of the Philippines’ crude requirements, is shipped via vessels from the Middle East that traverse the Strait of Hormuz.
In line with Fitch, the Philippines’ net fossil fuel imports account for about 4.2% of the country’s gross domestic product (GDP), making the country vulnerable to global oil price swings.
“More protracted high energy prices could add to external strains facing these sovereigns, especially if other stresses emerge, for instance, disruption to remittances,” it said.
On Friday, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said the continuing war within the Middle East could affect remittance flows as many migrant Filipinos work within the region.
“There’s some downside risk by way of demand for our labor services. We’re a significant exporter of labor services,” he said in an interview with CNBC. “Now we have 2.5 million Filipinos within the Middle East and so they send a whole lot of money home. About 18% of remittances come from the Middle East. So, that’s a priority.”
In 2025, overseas Filipino employees’ remittances rose by 3.3% yr on yr to hit a record high of $35.634 billion, with 18.19% or $6.481 billion coming from the Middle East.
FURTHER EASING UNLIKELY
Meanwhile, Nomura Global Markets Research said the continuing geopolitical tensions could affect the Philippines’ current account position and push up inflation, which could prompt the BSP to finish its current easing cycle.
“The conflict in Iran poses significant risks to the inflation outlook and external balances,” Nomura Chief ASEAN Economist Euben Paracuelles and Research Analyst Yiru Chen said in a March 6 report. “Despite a still-weak growth outlook, BSP will likely pivot to a more cautious stance soon.”
At its first policy review of the yr on Feb. 19, the central bank trimmed benchmark rates of interest by 25 basis points (bps) for a sixth straight meeting, bringing the policy rate to an over three-year low of 4.25%.
The choice got here on the back of a still manageable inflation outlook and because it sought to support domestic demand amid the economic fallout from a corruption scandal that has dented each consumer and business confidence.
The most recent cut brought total reductions to 225 bps because it began easing in August 2024.
Mr. Remolona said in an interview on Bloomberg Television on Friday that while the rise in fuel costs to this point amid the conflict stays “manageable,” the Monetary Board might be forced to hike rates once oil price hits $100 per barrel because it could bring inflation past 4%.
“We’re hoping we don’t should tighten within the face of upper inflation,” Mr. Remolona said. He added that if current risks don’t materialize, the central bank would likely maintain its current policy stance.
The buyer price index (CPI) averaged 2.2% for the primary two months after costlier energy prices within the country, particularly fuel and liquefied petroleum gas brought the headline print to 2.4% in February.
Nomura said they now expect inflation to average 3.2% this yr, up from their previous 2.5% estimate. It also sees the country’s current account deficit widening to 4% of GDP by yearend from 3.7% previously.
“Our higher CPI inflation forecast for 2026 reflects a fast and full pass-through from rising oil prices,” it said. “With the change in our inflation forecast, which pencils in an upward trajectory to the upper end of BSP’s 2-4% goal in coming months, we remove the ultimate 25-bp rate cut we forecast in April and expect BSP to depart the policy rate unchanged at 4.25%.”
The central bank wants to maintain inflation between 2% and 4%, with Mr. Remolona noting that their “sweet spot” stays at 3%.