Philippines Faces Risk of Losing Investment-Grade Ratings Amid Corruption, Oil Shock

The Philippines is facing the risk of losing its investment-grade sovereign credit ratings due to the twin threats of an oil shock and a prolonged corruption scandal in flood control projects, according to Monetary Board member Benjamin Diokno. Diokno, a former governor of the Bangko Sentral ng Pilipinas (BSP), stated in an interview with One News’ “Money Talks” that it is prudent to assume there is a risk and take appropriate actions. "We cannot be complacent and say they will continue to give us this rating, investment rating, because the rating agencies are reviewing our activities here," he said. This warning follows Fitch Ratings’ affirmation of the country’s BBB investment-grade rating but a revision of its outlook to negative, citing rising risks from global energy shocks and external pressures. However, BSP Governor Eli Remolona Jr. expressed confidence that the Philippines remains on track toward securing an A credit mark, asserting that the country’s fundamentals remain intact and the risks are largely external. Remolona also noted that a negative outlook does not automatically lead to a rating downgrade. The outlook revision had previously raised fears of the country receiving its first credit rating downgrade since 2005, when S&P cut the Philippines to below investment grade of BB- as fiscal conditions deteriorated. Diokno, who steered the central bank during the pandemic and saw about one-third of economies downgraded, took pride in the Philippines avoiding rating cuts. "That’s one of my major accomplishments as governor. We were never cut in our rating and that’s because I was very transparent," he stated. Concurrently, Diokno warned that corruption scandals in flood control projects could be more damaging than external shocks like an oil shock, as they would lead to a "loss of confidence," credibility, and a stoppage in infrastructure spending. Government infrastructure spending plunged by 45.6 percent to P189.3 billion during the January to April period from P347.6 billion a year earlier, as it has yet to fully recover from the flood control corruption issue from the previous year. "I wouldn’t be surprised if it will contract by more than that in the second quarter and so things are not moving. Things are not moving, so construction has stopped and that is a major part of our budget," Diokno elaborated. Meanwhile, S&P Global Ratings senior economist Vishrut Rana said the BSP is navigating a "tricky time" as it aims to tame inflation without growth trade-offs, amid weak demand conditions. "The central bank has to balance that to avoid worsening the growth situation. In our view, we think that modest further tightening is on the cards," Rana said in an interview with “Money Talks." Diokno had previously indicated he is "not ruling out further increases," possibly not only this year but also in 2027, following the central bank's second consecutive hike of its benchmark reverse repurchase rate by 25 basis points to 4.75 percent. Rana expects policy rates to end 2026 at five percent, higher than current levels, but cautioned that going beyond that could weigh heavily on domestic demand. Rana also flagged weak infrastructure spending, softer private consumption, and the energy shock as the main drivers behind S&P’s steep downgrade of Philippine growth to 4.1 percent this year from 5.8 percent, the sharpest cut in the region. "Combining these three factors, the private consumption, the public infrastructure spend, as well as the energy shock, are combining to give a relatively adverse year for the Philippines economy," Rana concluded.