The Philippines is facing a prolonged struggle to rein in its fiscal deficit and reduce leverage as high interest burdens and governance concerns weigh on the sovereign’s credit profile, according to reports from Moody’s Ratings and Fitch Ratings.

Moody’s, which published its assessment on Thursday, Feb. 12, warned that debt affordability—defined as the ratio of interest payments to revenue—will likely deteriorate over the next 24 months. The ratings agency expects this metric to weaken before a gradual normalization occurs.

Moody’s attributed the persistent pressure to elevated government funding costs and a lag in the transmission of monetary policy, which together will keep interest obligations high for the foreseeable future.

Fitch Ratings also echoed these concerns, noting that the Philippines’ interest-to-revenue ratio is projected to rise to 13 percent this year. That figure stands significantly higher than the nine percent median for peers rated in the ‘BBB’ category.

While the Bangko Sentral ng Pilipinas (BSP) has begun easing policy, bringing the benchmark rate to 4.5 percent, Fitch noted that the relief will not be immediate.

The rating agency explained that the benefits of lower rates will take time to filter through the government’s books due to the long average maturities of the country’s existing debt stock.

The fiscal warnings come as the Philippine economy faces significant headwinds as the country’s gross domestic product (GDP) growth slowed to 4.4 percent in 2025, a sharp deceleration that missed the government’s target range of 5.5 percent to 6.5 percent.

The slowdown was largely driven by the slump in investments as deepening probe into flood-control controversies paralyzed infrastructure spending and soured investor sentiment.

Despite these challenges, both rating agencies maintained their investment-grade ratings for the country.

Moody’s kept its ‘Baa2’ rating with a stable outlook, citing the country’s high economic growth potential relative to regional peers.

Fitch also maintained its ‘BBB’ rating with a stable outlook, though it noted the Philippines was the last among five large Asian emerging markets to secure such a status.

Fitch also cited structural risks, projecting the Philippines' debt-to-GDP ratio at 61 percent, outpacing Thailand’s 55.4 percent.

The agency pointed out that the government continues to allocate 4.3 percent of output to large-scale infrastructure projects, a commitment that limits its ability to narrow the budget gap quickly.

Furthermore, both Indonesia and the Philippines recorded the lowest scores in the region on the World Bank’s control of corruption indicator, with Fitch noting that the Philippines faced significant social unrest and protests in 2025 over governance standards.