Expectations that the Philippines' debt as a share to economic output would stay elevated in the coming years were flagged by debt watcher Moody's Ratings over the weekend, highlighting concerns on affordability when repaying obligations.

"Debt to GDP [gross domestic product] will remain higher than pre-pandemic levels and debt affordability, measured by general government interest payments to revenue ratio, will continue to weaken over the next two years," Moody's said on Saturday, March 1, following its recently concluded periodic review of the Philippines' credit rating—currently at Baa2, one notch above investment grade, with a stable outlook.

Credit ratings assess a government's creditworthiness and reflect the stability of its finances, which is closely linked to the country's overall economic performance. As such, credit ratings serve as a proxy indicator of the economy's health.

An investment-grade credit rating enables the government to secure loans at lower interest rates, which can, in turn, lead to reduced borrowing costs for consumers and businesses. This is because banks often use government-issued debt as a benchmark for setting interest rates on loans.

The debt-to-GDP ratio has remained above the 60-percent level deemed manageable for emerging markets like the Philippines for four years in a row, with end-2024's 60.7 percent above 2023's 60.1 percent.

As of December 2024, the national government's outstanding debt stood at P16.05 trillion.

As for general government (GG) debt—the metric that credit rating agencies monitor for their ratings actions, as it excludes intragovernmental debt holdings—the latest Department of Finance (DOF) data showed its ratio slightly improved to 53.6 percent in 2023 from 54.2 percent in 2022.

In assessing the Philippines' ability to repay debts, Moody's said a credit rating upgrade may be forthcoming only if there would be "a more rapid improvement in fiscal and government debt metrics than we currently expect, reversing the deterioration caused by the pandemic shock," adding that "such improvements would be facilitated by sustained robust economic growth."

Moody's said the Philippines is expected to sustain robust economic growth compared to its regional and rating peers despite inflationary pressures and potential global demand risks.

It forecasted Philippine GDP to grow by about six percent annually during the next two years—below pre-pandemic rates but within the government's targeted six to eight percent yearly for the period 2025 to 2028.

Disinflation, stable inflows of dollar remittances, as well as continued public investment spending would not only support economic expansion but also aid in the government's efforts to consolidate its fiscal position and reduce the debt burden, Moody's said.

On the flip side, Moody's warned that downward pressure on the Philippines' credit rating could arise from a deterioration in fiscal and debt metrics relative to its peers, a weakening of the country's external position, or a rollback of reforms that have bolstered fiscal and economic strength.

Also, any "material erosion" in the quality of the executive and legislative branches of the Philippine government would be considered credit-negative, Moody's added.

The Philippines currently enjoys investment-grade credit ratings from the so-called Big Three debt watchers, which, besides Moody's, include Fitch and Standard & Poor's (S&P).

The Marcos Jr. administration aspires to achieve "A" ratings from all three credit rating agencies before it steps down in 2028.