Major Credit Raters Fitch and Moody’s Affirm Stable, Investment-Grade Ratings for the Philippines

International credit ratings agency Fitch Ratings has assigned a ‘BBB’ rating with a ‘stable’ outlook to the Philippines’ proposed US dollar and euro bonds. Meanwhile, global debt watcher Moody’s Ratings affirmed the country’s investment grade rating with a ‘Baa2’ or a ‘stable’ outlook. 

On the ‘BBB’ Fitch Ratings

A “BBB’ investment grade rating from Fitch indicates better terms and lower interest rates for a borrower, as default risk is currently low. A ‘stable’ outlook means there is a low likelihood for a borrower’s credit rating to change in the short-term. 

The Philippines’ bonds’ rating is also consistent with the ‘stable’ outlook and ‘BBB’ rating on the Philippines’ Long-Term Foreign Currency Issuer Default Rating (IDR) issued last June 2024. In its commentary for the Long-term Foreign Currency IDR rating, Fitch highlighted that the country has an environmental, social, and governance (ESG) Relevance Score of ‘5’ out of ‘5’ for Political Stability and Rights, Rule of Law, Institutional and Regulatory Quality, and Control of Corruption. The score indicates that the ESG issues are highly relevant to and are directly influencing the current rating level for foreign currency IDR. Bonds’ ratings are sensitive and directly related to any shifts in the Long-Term Foreign Currency IDR.  

However, Fitch Ratings noted that the ratings may be downgraded if there is a decrease in confidence in the country’s medium-term economic growth and its commitment to sound economic policies. Moreover, a reduction in ratings may also occur if the government fails to maintain a stable debt-to-gross domestic product (GDP) ratio or if there is a significant decline in foreign currency reserves and the Philippines’ external debt position. 

Meanwhile, Fitch highlighted that the investment-grade ratings may be upgraded if the Philippines exceeds the current growth projections, lowers the debt-to-GDP ratio, and enhances government standards through sound macroeconomic policies to align with its peers.  

On the ‘Baa2’ Moody’s Ratings

A ‘Baa2’ investment grade credit rating from Moody’s indicates lower credit risks, which enables a country like the Philippines to obtain capital or debt at lower interest rates or public costs. 

Moody’s Ratings attributed the credit rating to the country’s economic reforms, fiscal consolidation efforts, and robust macroeconomic fundamentals. The debt watcher gave the Philippines the same rating in September 2022. 

However, Moody’s also pointed out risks to the country’s credit rating, such as weakening debt affordability due to high interest rates, prevailing weather and climate risks, and geopolitical uncertainties. It also highlighted that domestic economic growth could be slowed by poverty, uneven access to education, and a lack of training opportunities for labor upskilling.  

Moody’s also flagged the failure of the government to pass proposed fiscal reform bills and the higher government spending ahead of the 2025 midterm elections as this could pose risks to fiscal consolidation. Geopolitical tensions may also negatively impact growth in trade and tourism, but Moody’s does not anticipate this risk to worsen in the near-term.  

BSP welcomes Moody’s affirmation

Nonetheless, the Bangko Sentral ng Pilipinas (BSP) welcomed Moody’s positive rating. “The BSP welcomes Moody’s affirmation of the country’s investment-grade rating, even as we work with the government to improve the country’s ratings. We are taking a measured approach in safeguarding price stability conducive to sustainable economic growth,” BSP Governor Eli Remolona, Jr. said in a press release. 

Philippine Institute for Development Studies (PIDS) Senior Research Fellow John Paolo R. Rivera said that the upgraded credit ratings will help the country become an investment destination. He also emphasized that if the Philippine government continues to demonstrate stable macroeconomic fundamentals, “the economy is on track to achieve successive rating upgrades.” 

The government aims to have an “A” rating status from all three major credit raters (Moody’s, Fitch, and Standard and Poor’s) by the end of President Ferdinand Marcos Jr.’s administration in 2028.