The Philippines’ macroeconomic risk profile has deteriorated to its worst level in a decade, leaving the country increasingly vulnerable to global shocks as its Southeast Asian neighbors outpace it in fiscal health.

According to the latest emerging markets macro risk analysis by DBS Bank, which evaluates 27 developing economies, the Philippines has dropped to 13th place overall—a steady erosion of what was once a leading regional position.

The report noted that the Philippines held the top spot for the lowest vulnerability in 2017 and ranked second in 2020 during the peak of the Covid-19 pandemic. It has since slipped annually, falling to ninth in 2021 and 11th in 2023, before hitting its current decade-low ranking.

“Vulnerabilities in many EM [emerging market] economies have worsened in recent years from weaker public finances and increases in already elevated debt levels, while uneven reserve coverage for foreign obligations and exchange rate gaps persist,” the DBS report stated, reflecting the domestic trend.

DBS senior economist Chua Han Teng and analyst Daisy Sharma warned that “economies scoring poorly in this exercise run the risk of disorderly currency depreciation, capital flow volatility, debt service difficulties, and broader financial and economic distress.”

Specifically, the Philippines is hampered by a fiscal deficit of 4% of gross domestic product (GDP) and a negative savings-investment balance of 3.3%. These metrics stand in stark contrast to regional peers like Vietnam, which boasts a 6.7% savings-investment surplus.

“Overall portfolio flows to EMs are enduring increased volatility,” DBS noted, citing heightened global geopolitical tensions. The bank added that “EM economies with pre-existing macroeconomic vulnerabilities and imbalances still face higher downside risks from any escalation in geopolitical tensions, as well as abrupt deterioration of global investor sentiment and financial conditions.”

Separately, global credit rating agency Fitch Ratings reported on June 17 that the Asia-Pacific (APAC) region’s extreme reliance on imported oil and gas from the Gulf “exposes it to supply disruption.” It singled out the Philippines and Sri Lanka as economies at risk of sustaining “potential negative macroeconomic effects” from a supply shock.

Fitch recently revised its sovereign debt outlook for the Philippines to “negative” from “stable,” raising the risk of a downgrade to its “BBB” investment-grade rating over the next one to two years. The rating agency also lowered its outlook on the Philippine banking system to “deteriorating,” warning that exposure to ongoing geopolitical instability could dampen lending activity, raise credit costs, and squeeze bank profitability.