Moody’s Ratings said Philippine interest payments will absorb more than 14% of government revenue over the next two to three years as debt raised during the low-rate period is refinanced at higher yields, even as it affirmed the country’s Baa2 investment-grade rating with a stable outlook.
The New York-headquartered ratings agency expects the economy to grow by around 3.6% in 2026, well below its medium-term potential, as higher food and energy prices linked to the Middle East conflict combine with a sharp pullback in public investment following the probe into flood-control projects. However, Moody’s expects growth to recover to about 5.3% in 2027 as public disbursements resume and spending execution normalizes.
The rating agency said the government’s debt burden would likely peak at around 58% of gross domestic product in 2026 and 2027, broadly in line with the median for Baa-rated sovereigns, before declining only gradually. But the agency said debt affordability would remain a major credit constraint, with interest costs substantially above the roughly 9% interest-to-revenue median for similarly rated peers.
Moody’s retained its Baa2 rating and stable outlook, citing the expected resumption of fiscal consolidation, access to domestic and global funding markets, ample foreign-exchange reserves, and the economy’s longer-term support from demographics, remittances and service exports. It also affirmed the Baa2 ratings of the Bangko Sentral ng Pilipinas and ROP Sukuk Trust, the special financial entity created by the Philippines to issue its first-ever Islamic bonds.
The agency said a slower-than-expected recovery in business confidence, prolonged weakness in infrastructure-project execution and political developments in the run-up to the 2028 presidential election could weigh on private investment, growth and fiscal consolidation.
It also cited the ongoing Senate impeachment proceedings involving Vice President Sara Duterte as a potential source of political noise through the pre-election period. Moody’s said this could affect investor confidence, reform implementation and the passage of planned revenue measures.
The agency pointed out that the government’s broader tax package is intended to be revenue-neutral, but depends on offsetting revenue measures that have yet to be enacted. Any delay or dilution of these measures could slow fiscal consolidation, it said.
Still, Moody’s said a material shift in overall economic policy direction appeared unlikely, with most major reforms already legislated and the policy focus shifting toward implementation. The agency said the credit outlook could come under pressure if debt affordability worsens more than expected, growth weakness becomes persistent, or fiscal and institutional metrics deteriorate further.
Moody’s 3.6% forecast is more cautious than the 4.1% outlook published by S&P Global Ratings in June, which had already been sharply reduced amid the oil shock and softer public infrastructure spending.
BMI, a Fitch Solutions unit, projected 4.2% growth in May after cutting its estimate from 4.7%, citing weak first-quarter activity, higher inflation and spillovers from the US-Iran conflict. The International Monetary Fund’s 2026 projection was also 4.1%, according to a Bangko Sentral ng Pilipinas economic update.
