MANILA, Philippines – Economists at Nomura Global Market Research have stated that S&P Global Ratings' recent decision to revise the Philippines' sovereign outlook from "positive" to "stable" was anticipated, citing persistent economic challenges.
In a client note, Nomura highlighted that the country's growth prospects have weakened due to domestic issues, including the fallout from a flood control corruption scandal, and external pressures from the Middle East conflict, which has triggered an energy shock. The Philippines' dependence on imported oil leaves it particularly vulnerable to such global disruptions.
Nomura remarked, "The decision is not surprising, though the timing was earlier-than-expected as the next review cycle is still months away. Nonetheless, we have argued that the 'positive' outlook is at odds with large twin deficits and that the bar is high for a rating upgrade."
S&P justified its outlook adjustment by pointing to risks in the Philippines' external and fiscal metrics, which are unlikely to see significant improvement over the next two to three years. The agency also expressed concerns over the nation's twin deficits—simultaneous budget and current account shortfalls.
Additionally, S&P lowered the outlook for the state-owned Development Bank of the Philippines (DBP) to "stable," aligning it with the sovereign rating. The agency noted DBP's critical role in supporting the government's development agenda and its likelihood of receiving state support if needed.
Despite the downgrade, Nomura does not foresee a further shift to a "negative" outlook in the near term, barring any new economic shocks. The firm emphasized that while the outlook change reflects ongoing headwinds, it does not signal an immediate credit rating cut for the Philippines.