The government’s obsession with pleasing credit ratings agencies is misplaced during normal times, but it’s even worse amid the current oil price shock. The cost-push inflation rapidly working its way through the economy is already causing mounting economic distress. Being overly concerned about credit ratings will mean pro-cyclical fiscal conservatism that will make things worse for millions of Filipinos, as well as make economic growth even slower. The Marcos Jr administration needs to adjust its fiscal stance for the better.
Downgrades
The hand-wringing about recent outlook downgrades of the Philippines by two of the big three credit ratings agencies is unwarranted. Last week, S&P Global Ratings cut its outlook to “stable” from “positive” and, a few days ago, Fitch Ratings revised its sovereign outlook on the Philippines to “negative” from “stable”.
The credit ratings agencies use a risk calculus that narrowly focuses on the ability to pay, such as deficits, debt, and foreign exchange metrics, alongside assessments of external vulnerabilities. They are “credit ratings” agencies, after all. They do not assess development needs or social resilience.
For instance, the revised outlook to “stable” and “negative” by S&P and Fitch, respectively, is based on their reading of domestic fiscal conditions, especially amid the exogenous geopolitical factor of oil prices rising because of the US-led and Israel-supported attack on Iran. They are likely seeing the pressures from peso depreciation, growing import bills, and higher interest rates.
It’s worth stressing that the recent downgrades are also despite how the Marcos administration has been such a good debtor: It has returned Php7 trillion out of Php9.4 trillion in gross borrowings back to creditors as debt service, or the equivalent of 75% of gross borrowings since taking office. This didn’t help moderate national government (NG) debt, which rose to 63.2% of gross domestic product (GDP) in 2025, beating post-COVID highs to reach the highest in 20 years. NG debt has grown further to Php18.2 trillion as of February 2026.
Pro-cyclical bad
The biggest danger is that the outlook downgrades will reinforce the Marcos Jr administration’s reflexive fiscal conservatism, which is the exact opposite of what current social distress and slowing economic growth demand.
The government has to spend more to support disrupted livelihoods, give relief to vulnerable families, and stabilize the economy. Insisting on “fiscal consolidation” to please ratings agencies is narrow-minded. On the contrary, the Marcos Jr government has to pursue countercyclical spending supported by progressive revenue measures.
As it is, the Marcos Jr administration has not bothered to increase its social assistance budgets beyond what was already existing under the 2026 budget, which items were approved months before the oil price shocks hit and would have been disbursed anyway. These are much too small for the magnitude of the problems at hand.
Put another way, the oil price shocks are causing massive unforeseen distress, but the government’s hyped Php238 billion for oil crisis response is actually just a mere relabeling of existing aid programs. They are not new and additional commensurate to the new and additional distress being faced by millions of Filipino families.
What needs to be done? The quality and equity of the government’s fiscal stance have to be improved, not shrunk to appease credit ratings agencies.
It is extremely counterproductive for the government to remain locked into trying to mechanically hit deficit or debt targets just to satisfy credit ratings agencies. This will only worsen the livelihood and purchasing power crises of millions of Filipino families, as well as squeeze household consumption and with this, aggregate economic growth. This will worsen poverty and inequality, as well as slow recovery.
Counter-cyclical good
On the contrary, countercyclically expanding public spending for social relief and energy investments will not just be welfare-improving and stabilizing, but also enhance growth. This anchors growth in domestic demand, rather than on imagined benefits from fiscal compression, and prevents the downgrade from triggering a self-fulfilling austerity response.
Expanding subsidies to target as many distressed transport workers, farmers, fisherfolk, and lowest-income families as possible will give immediate, urgent relief while cushioning the oil shock’s second-round effect on prices. In contrast, staying within existing social assistance packages drawn up for an economy not facing historic oil price and supply shocks is regressive and contractionary. Unfortunately, as previously noted, the government is not undertaking any new and additional spending and is just repackaging various aid programs for the year that would have been spent anyway.
This oil shock response can be financed in a way that shifts the burden of adjustment upward and away from the country’s 21 million poorest, low-income, and lower middle-class families constituting 85% of the population. The revenue effort has to be improved from progressive sources.
Instead of relying on regressive consumption taxes like VAT and excise taxes, there can and should be stronger taxation of the highest-income groups with a billionaire wealth tax, windfall profits tax, and luxury taxes, all can generate some Php500-600 billion or more. The revenue-losing income tax cuts on rich families and large corporations can also be reversed to recover some Php200-300 billion in foregone revenues.
Public expenditures can be reprioritized towards investments in transport, food systems, and energy with high domestic social and economic multiplier effects, and away from low-impact and corruption-prone spending.
Stronger and more genuinely active management of oil prices and profits will also help moderate the need for repeated fiscal outlays to support distressed sectors. This can be done with caps on oil prices, according to publicly shared price unbundling and auditing of oil company costs and margins.
The negative outlook will likely weigh heavily on economic managers if they are unable to imagine a more proactive response to the oil shock. It is never too late to take steps to manage the oil shock in a way that is equitable, enhances growth, and is structurally transformative. This is even if it diverges from the narrow preferences of credit ratings agencies.
What matters
An obsession with credit ratings as some kind of measure of economic performance is bizarre. The agencies are not neutral arbiters of economic policy, do not consider social and economic development, and are only concerned about a country’s ability to pay, regardless of the social and economic costs.
The A-rating target of the Marcos Jr administration and its economic managers is seeking affirmation where it shouldn’t be sought. That target is questionable and really just means the governments prioritizing “investor confidence” —yet another distorted metric—over developmental imperatives.
How about more appropriate economic performance benchmarks like stronger Filipino industries, more robust agriculture and food production, resilience to external shocks, ample decent work, greater equality, and poverty eradication? Actually, if these are achieved, then credit metrics will improve as a byproduct, not the other way around. ###
