By Katherine K. Chan, Reporter
THE PHILIPPINES is among the countries most vulnerable to climate-related credit risks as extreme weather imperils the country’s economic and fiscal stability, Fitch Ratings said.
“We expect physical climate risks to have an adverse (effect) on the Philippines economy and public finances through various channels,” Edward Parker, Fitch Ratings managing director and global head of research, sovereigns and supranationals, told BusinessWorld in an e-mail.
“Unfortunately, more frequent and severe storms and flooding will cause loss of life, and damage to homes, infrastructure and business that will cause disruption to economic activity, associated loss of tax revenues and rebuilding costs,” he added.
In a recent report, Fitch determined that the Philippines faces one of the highest physical risk pressures on credit by 2050.
“Fitch Ratings believes the Philippines is one of the sovereigns most exposed to physical climate risks, based on an array of data and climate projections that feed into our Climate Vulnerability Signals,” Mr. Parker said. “It is particularly exposed to more frequent and severe storms and floods, and to a lesser extent to sea level rise.”
“We do not view it as particularly exposed to transition risks,” he added.
In the Climate Vulnerability Signals (Climate.VS) report, Fitch analyzed sovereign credit profiles’ potential exposure to climate-related risks from 2030 to 2050 by scoring them on a scale of 0 to 100, based on both physical and transition risks.
Out of the 119 countries analyzed, 60 countries, including the Philippines, were at risk of a credit rating downgrade due to issues arising from climate concerns.
Physical risks include heatwaves and wildfires, droughts, storms, floods and landslides, and a rise in sea levels.
Meanwhile, transition risks pertain to fossil fuel dependence or the exposure of major fossil fuel producers to a projected decline in global demand for fossil fuels as well as green energy costs or the cost of de-carbonization.
Based on the debt watcher’s Climate.VS, the Philippines scored 55 out of 100 in terms of overall physical risk (VSp).
A VSp of 50 means Fitch Ratings could bring the country’s credit rating one notch lower.
Fitch Ratings last affirmed its “BBB” long-term foreign currency issuer default rating and “stable” outlook for the Philippines in April last year.
A “stable” outlook means the Philippines will likely maintain its rating in the next 18 to 24 months.
The Philippines usually encounters about 20 storms yearly due its proximity to the Pacific Ocean, according to the state weather bureau Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA).
In 2025, 23 typhoons hit the country, affecting millions of Filipinos and leaving billions of pesos worth of damage nationwide.
Fitch’s Mr. Parker said such climate risks could disrupt the local agriculture sector, potentially causing food prices and overall inflation to spike.
“Public expenditure aimed at mitigating some of the effects could also add to budget deficits, other things equal,” he added.
Considering this, the country should invest in flood control and disaster preparedness initiatives to ensure the economy has adequate buffers against climate-related risks, Mr. Parker noted.
“Investment in infrastructure such as sea and flood defenses in critical areas and in disaster preparedness capacity can help countries to mitigate some of the impact of physical climate risks,” he said. “They can also help to adapt to physical risks through careful consideration of planning, development and land use.”
Last year, extensive flooding revealed substandard or nonexistent flood control projects across the country. These practices were later linked to Public Works officials, lawmakers and contractors who allegedly received kickbacks from the government’s infrastructure program.
Fitch Ratings earlier told this paper that the graft scandal also risks the Philippines’ credit rating due to its impact on political stability, fiscal policy implementation, as well as business and consumer confidence.
PAGASA expects four to 11 tropical cyclones to hit the country until July this year, with zero to one storm monthly until April and one to two each in May and June.
