While the Philippines’ graduation to upper-middle-income-country (UMIC) status is a nod to its economic progress, President Ferdinand R. Marcos Jr.’s chief economic manager said the milestone alone cannot do the heavy lifting needed for the country to achieve an ‘A’-level sovereign credit rating by 2028 or sustain the positive outlooks currently assigned by debt watchers.

“Achieving an ‘A’ credit rating isn’t just about income classification. You also have to perform well on reforms, gross domestic product (GDP) growth, the fiscal deficit, the current account, and other key economic indicators,” Finance Secretary Frederick D. Go said in a roundtable with the media on Tuesday, July 7.

The current administration is eyeing the credit rating upgrade by 2028, the year President Marcos Jr. steps down.

While the Department of Finance (DOF) chief sounded upbeat on the country’s sovereign position, he noted that the income classification upgrade is merely a positive development, not a significant contribution to the country’s credit footing.

“It’s definitely a positive,” Go said, referring to the UMIC milestone. “It’s one of the contributions on the road to an ‘A’ rating, but I can’t say it’s significant.”

He added that the current administration still has two years to ramp up its efforts to come closer to the target but asserted that, for this to materialize, global economic conditions and energy prices have to cooperate.

S&P Global Ratings revised the country’s outlook to ‘stable’ from ‘positive’ in April while affirming its ‘BBB+’ rating—effectively narrowing the window for an upgrade. A ‘stable’ outlook signals the likelihood of an unchanged rating within the next two years.

S&P had said the outlook revision reflected rising risks to the Philippines’ external and fiscal positions, citing vulnerabilities stemming from geopolitical tensions, particularly the conflict in the Middle East.

Similarly, Fitch Ratings downgraded its outlook on the Philippines’ investment-grade status from ‘stable’ to ‘negative.’

This shift in outlook places the Philippines at risk of a potential credit rating downgrade. For Fitch, a ‘negative’ outlook means there is a higher likelihood of a downgrade over a one- to two-year horizon if underlying risks persist or worsen.

Moody’s retained its ‘stable’ credit outlook for the Philippines in April, supported by a “large, domestically driven emerging economy with strong medium-term growth potential.” This growth is underpinned by favorable demographics and a stable, well-capitalized banking system.

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

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

Despite the long road ahead toward an ‘A’ rating, Go noted that the ascent to the UMIC bracket alters the country’s standing in the eyes of global lenders, potentially lowering the cost of the majority of the nation’s borrowings.

He argued that the focus should remain on the broader impact on creditworthiness rather than localized concerns over niche loan programs. According to the DOF chief, the Philippines’ UMIC classification enhances its creditworthiness, allowing the government to borrow at lower interest rates.

Go pointed out that while critics often focus on concessional loans, these represent only around a tenth of the sovereign’s loan book. “What you should be asking is how important the UMIC status is for 85 percent of our loans,” he said.

This shift in perception acts similarly to a personal bank application, where the institution views a higher income bracket as a sign of stability.

“It’s basically telling lenders around the world that the Philippines is now in a higher category relative to the rest of the world. That will definitely help our creditworthiness. Banks will immediately view the Philippines more favorably,” he said.

Further, concerns regarding the potential loss of low-interest official development assistance (ODA) and grants were dismissed by Go as premature, noting that the international system provides a substantial buffer for transitioning nations.

“There’s nothing to worry about, at least in the near term, because we have to maintain our UMIC classification for at least three years before any change takes effect. So, for the near term, nothing will change. We’re not going to lose any grants,” Go made clear.

He further reassured that the upgrade has not deterred partners. “If you’re asking whether anyone has told us they no longer want to lend to the Philippines because we’re now a UMIC, the answer is no. Flat out, no.”

Beyond its implications for debt management, Go said the Philippines’ status upgrade serves as external recognition of the government’s long-term economic efforts, describing it as an affirmation that the country has made the right policy choices to move out of the lower middle-income bracket after four decades.

Meanwhile, Go cautioned that the work is far from over, as the Philippines currently sits at the very edge of the new category. “We’re at the starting point. It’s like if we do a really bad job next year, we’ll fall out of the classification.”