President Rodrigo Duterte's campaign on illegal drugs and armed Islamist rebellion pose "rising" risks to the Philippine economy, though it should continue to grow robustly in the short term, Moody's Investors Service said.
Duterte is battling militants in Marawi, while rights groups have accused him of orchestrating a crime against humanity with police allegedly killing more than 3,800 drug suspects in 14 months.
"The re-emergence of conflict in the southern Philippines, as well as the Duterte administration's focus on the eradication of illegal drugs, represents a rising but unlikely risk of a deterioration in economic performance and institutional strength," the credit ratings agency said.
Sound economic and fiscal policies including a focus on infrastructure development balance out political and other risks, it said in a country report released on Friday that affirmed the Philippines' investment-grade credit rating and stable outlook.
But martial law, imposed by Duterte on the southern region of Mindanao to stop the Islamist threat, could be declared elsewhere in the country and upset this balance, it said.
"(A) worsening of the Islamist insurgency in Mindanao... could lead to an expansion of martial law, undermine both foreign and domestic business confidence, and disrupt economic activity in other parts of the country," it said.
Duterte has said the military campaign in Marawi, which has left more than 800 people dead in a region wracked by decades of Muslim armed rebellion, was on its final stages.
Anti-Duterte protests are planned for Thursday, the 45th anniversary of the imposition of martial law by former president Ferdinand Marcos.
Moody's also cited "continued uncertainties" over Duterte's proposed comprehensive tax reform law that Congress had yet to pass.
"In the absence of a significant boost to government revenues from the passage of the (bill), the government will likely pare back its plan to aggressively increase its spending on infrastructure," it added.
The report affirmed Moody's short-term 6.5% GDP growth forecast for the Philippines this year and 6.8% in 2018.