The Marcos administration will spend a larger portion of government revenue servicing national debt over the next two to three years, credit rating firm Moody’s Ratings warned, pointing to a durable deterioration in debt affordability even as it affirmed the nation's investment-grade rating.

In a statement on Monday, Aug. 24, Moody’s noted that Interest payments are projected to absorb more than 14 percent of government revenue as debt incurred during the prolonged low-interest-rate environment matures and gets refinanced at higher prevailing yields.

That dynamic leaves debt affordability significantly weaker than the “Baa-rated” peer median of around nine percent, serving as a key constraint on the sovereign credit profile.

Moody’s, however, affirmed the Philippines’ long-term issuer ratings at “Baa2” with a stable outlook, signaling an expectation that fiscal metrics will stabilize over the next two years.

That outlook rests on a gradual economic recovery following a sharp cyclical slowdown, along with the government’s commitment to fiscal consolidation.

Near-term economic growth has decelerated markedly. Real gross domestic product expansion is projected at 3.6 percent in 2026—well below medium-term potential—before picking up to around 5.3 percent in 2027. The weakness stems from twin external and domestic shocks: spiked food and energy import costs following Middle East conflicts, and a contraction in public investment due to an official investigation into flood-control projects.

Moody’s expects economic activity to recover in the second half of 2026 as stalled infrastructure spending normalizes and delayed disbursements resume.

General government debt is projected to peak at roughly 58 percent of gross domestic product (GDP) across 2026 and 2027, staying roughly in line with the Baa-rated peer median of 60 percent.

The current account deficit is also set to widen to about four percent of GDP in 2026 due to higher energy import costs and peso depreciation, before easing as global energy prices cool and external demand stabilizes.

Structural foreign-currency inflows—led by personal remittances from overseas workers, which account for roughly eight percent of GDP, alongside a resilient business process outsourcing sector—continue to insulate the external balance alongside foreign reserves covering seven months of imports.

Meanwhile, downside risks to the rating include potential delays in private investment, mounting political noise in the run-up to the 2028 presidential cycle, and ongoing Senate impeachment proceedings involving Vice President Sara Duterte, which could hamper legislative momentum for planned tax packages.