Moody’s Ratings affirmed the Philippines’ Baa2 investment-grade rating with a stable outlook on Monday, betting that a rebound in public investment and fiscal consolidation will help the economy recover from a sharp slowdown in 2026.
The ratings agency expects growth to slow to 3.6% this year from 4.4% in 2025, before rebounding to 5.3% in 2027.
Moody’s blamed the slowdown on higher food and energy prices stemming from the Middle East conflict and a sharp contraction in public investment following a government probe into flood-control projects. Elevated prices and uncertainty have also dampened business confidence and private investment.
“The near-term weakness reflects two shocks: higher food and energy prices stemming from the conflict in the Middle East, and a sharp contraction in public investment following the probe into flood-control projects,” Moody’s said.
It expects both shocks to be largely cyclical, with a recovery beginning in the second half as the government resumes stalled disbursements and normalizes infrastructure spending.
The rating affirmation reflects expectations that fiscal metrics will stabilize over the next two years as growth recovers and the government maintains its commitment to fiscal consolidation, Moody’s said.
The Philippines’ strong access to domestic and international funding markets and ample foreign-currency reserves also support its credit profile. Those strengths are offset by weakening debt affordability, institutional constraints, low income levels and high exposure to climate risks.
Moody’s expects medium-term growth to be supported by favorable demographics, resilient remittances and services exports, and a gradual recovery in investment. Potential growth, however, is likely to remain below the nearly 6% pace recorded before the pandemic.
Public infrastructure and public-private partnerships are expected to lead investment, particularly in renewable energy. Reforms including the CREATE MORE Act, foreign investment liberalization and greater private and foreign participation in renewable energy should also support investment and productivity.
The Middle East energy shock is meanwhile putting pressure on the Philippines’ external accounts, with Moody’s forecasting the current account deficit to widen to around 4% of gross domestic product in 2026 as energy import costs rise and the peso weakens.
The deficit should narrow as energy prices ease and export demand recovers, while remittances and the business process outsourcing sector are expected to remain steady sources of foreign currency.
Foreign reserves covering around seven months of imports provide a buffer against external and capital-flow volatility, Moody’s said.
The agency flagged a prolonged economic slowdown, pre-election spending pressures, weaker reform momentum and further deterioration in debt affordability as risks to fiscal consolidation and the sovereign’s credit profile ahead of the 2028 presidential election.
