Moody’s, Fitch flag high Philippine debt, interest payments

MANILA, Philippines — The Philippines’ stable growth outlook is keeping its investment-grade rating intact, but high debt levels and a persistent budget deficit continue to weigh on the fiscal consolidation path.

In separate assessment reports, global debt watchers Moody’s Ratings and Fitch Ratings maintained their respective “Baa2” and “BBB” ratings on the Philippine government, both with a stable outlook.

The debt watchdogs cited the country’s resilient economic growth despite last year’s economic slowdown.

READ: Philippine GDP growth slumps to post-pandemic low of 3% in Q4 2025

However, both agencies flagged elevated debt and weakening debt affordability as key constraints.

Notably, Philippine debt hit an all-time high of P17.71 trillion in 2025, with the debt-to-GDP ratio reaching 63.2 percent — the highest in two decades. The ratio has remained elevated since 2021 following the pandemic shock.

READ: Philippine debt swells to new high of P17.71 trillion

“Debt affordability, measured by the ratio of interest payments to revenue, is expected to weaken over the next two years before gradually normalizing as refinancing rates decline and economic growth returns to its long-term trend,” Moody’s said.

This suggests interest payments will remain elevated in the near term, as high government funding costs and the lagged impact of monetary easing continue to strain public finances.

Cost-to-revenue ratio

Similarly, Fitch projected that the Philippines’ interest cost-to-revenue ratio could reach 13 percent in 2026. This is higher than the 9 percent median for ‘BBB’-rated peers.

It also expects the country’s debt-to-GDP ratio to remain above the 60 percent threshold at around 61 percent this year.

“Fiscal room to respond to shocks has fallen over the past decade. Government debt burdens vary among these Asian sovereigns, but are on average 15 percentage points higher than their pre- pandemic levels,” Fitch said.

“Weak fiscal consolidation in the post-COVID-19 period, despite higher growth than their ‘BBB’ peers, means that these countries’ debt ratios have not improved materially,” it added.

READ: Philippine dream of ‘A’ rating still possible despite graft fallout

Upward pressure

Moody’s said reducing the national government fiscal deficit to 4.3 percent of GDP by 2028 from an estimated 5.6 percent in 2025, will depend on reforms to improve revenue collection and spending efficiency.

Still, while this could gradually ease the debt burden, it is expected to remain above pre-pandemic levels.

On a possible credit upgrade, Moody’s said it would be driven by rapid improvement in fiscal and government debt metrics.

“Such improvements would be facilitated by sustained robust economic growth. Conversely, a deterioration in fiscal and government debt metrics relative to peers or an erosion of the country’s external position would put downward pressure on the rating,” it said.

Fitch, meanwhile, forecasts Philippine economic growth at 5.7 percent in 2026. This is the second highest among five large Asian sovereigns, including India, Indonesia, Malaysia and Thailand. If realized, it will fall within the government’s revised 5 to 6 percent target range for the year.

“We expect a gradual and modest decrease in government debt/GDP ratios over the next few years for these sovereigns. High real GDP growth will support the reduction for the Philippines,” Fitch said. However, it warned of downside risks stemming from lower government spending due to the corruption scandal. /dda