While Japan Credit Rating Agency’s (JCR) retained an investment-grade credit rating of “A-” with a “stable” outlook for the Philippines, it raised the challenge of narrowing income disparity tied to infrastructure and rural development, and a setback on fiscal reforms that could hurt this rating.

“Reducing income disparity through rural development and infrastructure development remains a key challenge,” JCR chief analyst Atsushi Masuda and senior analyst Shinya Iwasaki said in the debt watcher’s report published on Wednesday, Sept. 17.

This comes even as the economy has “maintained strong growth” through government-led infrastructure projects.

JCR noted the policies that the government is implementing to address the country’s concerns on the fiscal, infrastructure, and poverty fronts. It described the progress as “steady.”

Among the recent issues that have emerged is the Department of Public Works and Highways' (DPWH) request to reduce its 2026 budget, from the initially proposed ₱881.3 billion to ₱624.8 billion.

According to the Department of Budget and Management (DBM), this will not derail the record infrastructure spending target for 2026, which is set at ₱1.56 trillion. The scrapped flood control funds will still be reallocated to other infrastructure projects in various sectors.

“Going forward, the successful attainment of government targets—including higher per capita income, lower poverty rate, expanded domestic employment opportunities, continued infrastructure investment, and structural reforms—will have a positive impact on the credit rating,” JCR said.

“On the other hand, a setback in fiscal reforms will have a negative impact on the credit rating,” it further said.

The national government targets public infrastructure spending at five percent to six percent of gross domestic product (GDP) each year. Public infrastructure spending reached 5.8 percent of GDP in both 2023 and 2024.

Additionally, the government aims to reduce the poverty rate to single digits by the end of the Marcos administration in 2028, supported by wage hikes in the agricultural sector. Poverty fell to 15.5 percent in 2023.

Meanwhile, JCR’s latest report reflects the country’s “high and sustainable economic growth supported by solid domestic demand, low-level external debt, and resilience to external shocks supported by accumulated foreign exchange (forex) reserves.”

Growth stood at 5.5 percent in the second quarter of the year, slightly faster than the first quarter’s 5.4 percent growth. However, this was far below the 6.5 percent output expansion in the same period last year.

JCR stated that the Marcos administration’s fiscal consolidation under the medium-term fiscal framework has been “successful” and is expected to maintain the country’s sound finances.

Meanwhile, the debt watcher said the country’s financial system is “stable.”

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said in a Sept .18 statement that the central bank “continues to implement policies that promote robust capitalization and sound risk management among banks.”

“These support financial stability and further build confidence in the domestic financial system,” Remolona said.

Data showed that the capital adequacy ratio of universal and commercial banks (U/KBs) or big banks stood at 16.5 percent, while asset quality remained strong. Additionally, bad loan or non-performing loan (NPL) ratio eased to 3.1 percent as of end-July 2025 from 3.6 percent during the pandemic in 2021.