MANILA — The Philippines faces a low risk of an immediate sovereign credit rating downgrade, according to analysis from Nomura Global Markets Research. The financial institution suggests that while recent outlook revisions by major agencies signal caution, an outright downgrade remains unlikely unless geopolitical tensions significantly escalate.
In a recent note, Nomura economists Euben Paracuelles and Nabila Amani highlighted that the country's fiscal risks appear more manageable compared to other nations under similar ratings pressure. This assessment comes after Fitch Ratings revised its outlook on the Philippines to "negative" from "stable" earlier this week, indicating potential downgrade risks within one to two years if fiscal conditions don't improve.
"As we argued before, a shift to a negative outlook, much less a rating downgrade, by S&P, is unlikely over the next few months, even with its higher credit rating, and we believe it will be the same for Fitch, unless the crisis becomes significantly prolonged," Paracuelles and Amani stated.
The Fitch action followed S&P Global Ratings' recent decision to lower its outlook to "stable" from "positive," dimming hopes for the country's first-ever "A" rating from a major agency. Both rating firms cited similar challenges: a government grappling with the aftermath of a corruption scandal that stalled public spending, now confronting an oil shock with reduced fiscal buffers.
Moody's Ratings, the third major agency, has yet to announce any rating changes but recently warned that Middle East conflicts have increased downside risks to the Philippines' economic outlook by driving up global energy prices and external cost pressures.
Nomura economists remain optimistic about the review cycle, noting that "by the next review cycle, the main factors cited by Fitch for a downgrade will likely show some improvements, in our view."
Looking forward, the research firm anticipates economic growth should rebound as the government accelerates infrastructure spending and external trade pressures ease. A credit downgrade would mark the country's first since 2005, when political turmoil and fiscal instability weakened the Philippines' credit standing, potentially increasing government borrowing costs during a period of development-focused budget deficits.