By Katherine K. Chan, A reporter
The PHILIPPINES faces credit risks as a growing conflict the Middle East, especially if it continues for a long time, may stress the country oil imports, overseas Filipinos’ currencies, and the peso, Fitch Ratings said.
In a statement on Saturday, the credit watchdog said emerging markets including the Philippines could see a “significant impact” on their credit ratings if the Strait of Hormuz remains closed for more than a month.
“The Iran conflict may raise additional challenges for other emerging market leaders, through channels such as energy imports, currency issuance, financing, exchange rates and access to international finance,” Fitch said.
“Under our basis, when the effective closure of the Strait of Hormuz takes less than a month and avoids major damage to the region’s oil production infrastructure, the risks to emerging market rates should be contained, but a prolonged closure or continued effects could lead to a major impact,” it added.
Enter affrated the long-term “BBB” foreign currency rating and a “stable” outlook for the Philippines in April last year.
The “stable” outlook means the Philippines will likely maintain its rating over the next 18 to 24 months.
Since the start of the attack by the United States and Israel on Iran late last month, the Strait of Hormuz has been closed, raising concerns about oil trade in the region as experts have warned that any disruption of the key chokepoint could increase global fuel prices.
About a fifth of the world’s oil, including more than 90% of the Philippines’ crude needs, is shipped from the Middle East through the Strait of Hormuz.
According to Fitch, the Philippines’ fossil fuel consumption is about 4.2% of the country’s gross domestic product (GDP), making the country vulnerable to global oil price fluctuations.
“Prolonged high energy prices can add to the external pressures facing these leaders, especially if other pressures emerge, for example, disruptions in remittances,” he said.
On Friday, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. he said the ongoing war in the Middle East could disrupt the flow of income as more Filipinos work in the region.
“There is some downside risk in terms of demand for our human services. We are a large exporter of human services,” he said in an interview with CNBC. “We have 2.5 million Filipinos in the Middle East and they send a lot of money home. About 18% of remittances come from the Middle East. So, that’s a concern.”
By 2025, remittances from Filipino workers abroad increased by 3.3% year-on-year to a record high of 35.634 billion dollars, with 18.19% or 6.481 billion dollars coming from the Middle East.
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Meanwhile, Nomura Global Markets Research said the country’s ongoing tensions could affect the Philippines’ current account position and raise inflation, which could prompt the BSP to end its current easing cycle.
“The conflict in Iran poses a significant risk to the outlook for inflation and the external balance,” said Nomura’s ASEAN economist Euben Paracuelles and Research analyst Yiru Chen in a March 6 report. “Despite the weak growth outlook, the BSP will likely focus on a cautious stance soon.”
In its first annual policy review on Feb. 19, the central bank cut benchmark interest rates by 25 basis points (bps) for the sixth consecutive meeting, bringing the policy rate to a three-year low of 4.25%.
This decision came after the still manageable view of inflation and as we want to support domestic needs during the economic downturn in the corruption scandal that has affected the confidence of consumers and businesses.
The latest cut brought the total rate down by 225 bps since it began its decline in August 2024.
Mr. Remolona said in an interview with Bloomberg Television on Friday that although the increase in fuel costs so far during the conflict remains “manageable,” the Monetary Board may be forced to raise prices if the price of oil reaches $100 per barrel as it may cause inflation to exceed 4%.
“We hope that we don’t have to tighten up in the face of inflation,” said Mr. Remolona. He added that if the current risks do not materialize, the central bank will maintain its policy stance.
The consumer price index (CPI) reached 2.2% in the first two months after the country’s most expensive energy prices, especially gasoline and liquefied petroleum gas brought the headlines to 2.4% in February.
Nomura said they now expect inflation to reach 3.2% this year, up from 2.5%. It also sees the country’s current account deficit widening to 4% of GDP by the end of the year from 3.7% previously.
“Our CPI headline inflation forecast for 2026 shows a quick and full pass-through of rising oil prices,” he said. “With the change in our inflation forecast, which is moving higher towards the end of the BSP’s target of 2-4% in the coming months, we are removing the last 25-bp cut we predicted in April and we expect the BSP to leave the policy rate unchanged at 4.25%.
The central bank wants to keep inflation between 2% and 4%, with Mr Remolona noting that their “sweet spot” remains at 3%.
