THE PHILIPPINES stays on track for a possible credit standing upgrade as improving fiscal and external balances outweigh risks from the federal government’s flood control controversy, Standard & Poor’s (S&P) Global Rankings said.
“We also see the Philippine sovereign credit metrics strengthening over the subsequent one to 2 years,” the rating company said in a Feb. 3 report. “Over this era, we expect that narrowing fiscal and current account deficits could augment sovereign credit buffers sufficiently to higher support a better rating.”
S&P last affirmed the Philippines’ long-term “BBB+” and short-term “A-2” credit rankings in November. It also kept a “positive” outlook on the country, signaling that a rating upgrade is feasible over the subsequent one to 2 years if improvements in credit fundamentals are sustained.
The debt watcher said it stays optimistic in regards to the Philippines’ medium-term growth prospects despite the political fallout from allegations of corruption tied to flood control projects.
Nonetheless, it cautioned that the controversy could slow progress in strengthening the country’s credit profile.
“The political spillover of alleged corruption related to flood control projects may slow the credit improvement,” S&P said.
It added that the federal government has devoted significant attention to investigating the misuse of public funds and addressing impeachment complaints against the President, while some infrastructure projects have been suspended consequently.
Still, S&P kept its gross domestic product (GDP) growth forecast for the Philippines at 5.7% this 12 months, near the upper end of the federal government’s 5% to six% goal.
This may make the Philippines considered one of the fastest-growing economies within the Asia-Pacific region, trailing only India and Vietnam, that are projected to expand by 6.7%.
“Despite a probable economic slowdown, we still expect the Philippines to stay an outperformer amongst peers at similar levels of average income,” S&P said.
The Philippine economy grew 4.4% last 12 months, its weakest performance in five years. Fourth-quarter GDP growth slowed to three%, the bottom in 16 years excluding the pandemic period, as delays in flood control projects weighed on investment, household spending, and government disbursements.
Fiscal pressures also remained evident. The National Government’s budget deficit had widened to P1.26 trillion as of end-November 2025 from P1.18 trillion a 12 months earlier, based on Treasury data. This reflected sluggish revenue growth alongside restrained spending in the course of the period.
State revenue reached P340.7 billion in November, a marginal 0.72% increase from a 12 months earlier.
Even so, S&P said reduced capital spending would likely limit the impact of weaker revenue performance on the fiscal deficit. It expects the deficit to proceed narrowing over the medium term as fiscal consolidation efforts take hold.
For 2027 and 2028, S&P projected GDP growth at 6.5%. The Development Budget Coordination Committee is targeting economic growth of 5.5% to six.5% next 12 months and 6% to 7% in 2028.
S&P said an upgrade to the Philippines’ credit standing could occur if the federal government strengthens fiscal consolidation and further narrows its current account deficits, supporting a stable external position over the long run.
Ensuring that the narrow net external balance supports a structural net asset position can be credit positive.
Alternatively, S&P warned that a deterioration in fiscal or debt metrics, coupled with weaker long-term growth prospects, could prompt it to revise the country’s outlook to “stable.”
“We could also revise the outlook to stable if persistently large current account deficits result in a structural weakening of the Philippines’ external balance sheet,” it said.
Data from the Bangko Sentral ng Pilipinas (BSP) showed that the country’s current account deficit narrowed to 2.8% of GDP within the third quarter of last 12 months from 4.8% a 12 months earlier.
The BSP expects the present account deficit to have settled at 3.2% of GDP at end-2025 and ease further to three% this 12 months. — Katherine K. Chan