Low GDP per capita, political volatility weigh on Philippines ratings - Fitch

MANILA, Philippines — The Philippines’ sovereign rating remains constrained by structural weaknesses, including low gross domestic product (GDP) per head and governance standards that lag behind peers, Fitch Ratings said.

In its latest report, Fitch said the country’s BBB rating reflects its strong medium-term growth, which supports a gradual reduction in government debt to GDP over the medium term and the large size of the economy relative to ‘BBB’ peers.

However, “the rating is constrained by low GDP per head, despite an upward trend. Governance standards are weaker than at peers, though Fitch believes World Bank Governance Indicator scores somewhat overstate this,” it said.

GDP growth has also slowed since COVID-19 pandemic rebound in activity. Still, GDP is expected to grow by 5.7 percent in 2024 and further to 6.2 percent in 2026.

Robust domestic demand, monetary policy easing, infrastructure spending and reforms to foster trade and investments would drive the growth.

Wider-than-expected fiscal deficits are also likely to persist, Fitch said.

It projects the central government fiscal deficit forecast at 5.7 percent of GDP in 2024, before narrowing to 4.9 percent by 2026.

Central government debt is also expected to stabilize at 61 percent of GDP by end-2024, with general government debt remaining around 55 percent of GDP.

The credit rater also expects the Bangko Sentral ng Pilipinas (BSP) to continue its monetary easing cycle next year. Fitch projects additional rate cuts totaling 100 basis points in 2025 as inflation stabilizes.

“We forecast inflation to stay around (manageable) levels in 2025 to 2026, leading to a further 100 basis points of rate cuts in 2025,” Fitch said.

“A credible inflation-targeting framework and flexible exchange rate regime contribute to a sound economic policy framework and support the country’s rating,” it said.

Fitch warned that political conflicts, which have escalated ahead of the May 2025 mid-term elections, could, if sustained, weigh on macroeconomic and fiscal performance.

“Fierce public disagreements have erupted between President Marcos and Vice President Duterte and their families. Duterte is under investigation for threats to the President and for misuse of public funds,” Fitch said.

According to the debt watcher the support of Vice President Duterte and her father, former president Rodrigo Duterte, was instrumental in President Marcos’ landslide win in the 2022 election.