Global debt watcher Fitch Ratings said the Philippines’ pursuit of an A-level sovereign credit rating could face delays if oil-related uncertainty persists, potentially stalling the Marcos administration’s efforts to narrow its budget deficit.

Jeremy Zook, senior director for sovereign ratings at Fitch Ratings, said during a virtual press briefing that while the agency maintains a positive outlook on Philippine economic expansion, several downside risks are beginning to cloud the credit assessment.

“Our rating model assigned the Philippines a BB+ outcome, but we upgraded it two notches to BBB, largely reflecting the country’s strong medium-term growth outlook,” Zook said.

“Any factor that undermines our view of that medium-term growth outlook would be a key driver of potential negative rating pressure. If these growth challenges become more entrenched and structural, they could pose significant risks to the rating,” he added.

Earlier this year, Fitch maintained its ‘BBB’ rating with a stable outlook despite the difficulty the Philippines faces in narrowing its fiscal deficit and reducing its debt, as high interest costs and governance issues continue to weigh on its credit profile.

Fitch also noted that the Philippines was the last among five large Asian emerging markets to secure a triple ‘B’ flat status.

According to Zook, the oil shock stemming from the escalating military conflict in the Middle East poses a significant threat to domestic output growth, as the country is “a very large net energy importer.”

Zook added that the Philippines is “probably one of the more exposed in terms of potential economic impact in the Asia-Pacific (APAC) region.”

If oil prices surge back to $100 a barrel, this could put tremendous pressure on the country’s current account deficit, Zook said, with follow-on impacts on prices and output growth becoming significant if elevated oil costs persist.

Citing the ongoing uncertainty, Fitch expects the Philippines’ gross domestic product (GDP) to expand and recover more gradually than earlier expected. Recall that the economy was hit in 2025, slowing to a worse-than-expected growth rate of 4.4 percent due to dampened confidence stemming from the controversial flood-control fiasco.

On fiscal balance, Zook explained that the oil shock may slow the pace of fiscal consolidation and lead to a wider fiscal deficit in 2026. This widening would be exacerbated by government subsidies being rolled out in response to surging pump prices.

Zook said this could present another stumbling block. “Like many other APAC economies, the Philippines has seen a rise in government debt, and efforts to bring that debt down have yet to materialize and have effectively been pushed further into the future,” he said.

Fitch’s outlook on efforts to reduce debt and narrow the fiscal deficit, coupled with its outlook on Philippine growth, “could be really some headwinds to the rating,” Zook said.

Recall that the Marcos administration’s budget deficit widened in 2025, overshooting its ceiling as a shortfall in tax collections and a plunge in non-tax revenue outweighed eleventh-hour spending cuts by the government.

Data from the Bureau of the Treasury (BTr) showed that the national government closed 2025 with a ₱1.58 trillion fiscal deficit, wider than the ₱1.51 trillion gap in 2024 and exceeding the ₱1.56 trillion program for the year.