The Philippines face rising borrowing costs after a third leading ratings agency cut its sovereign debt outlook.
Embattled President Gloria Arroyo is facing demands to step down
The downgrade by Moody's, which follows warnings by Standard & Poor's and Fitch, came amidst a political storm surrounding President Gloria Arroyo.
Ms Arroyo is embroiled in a row over accusations of electoral fraud.
She has apologised for calling an election commissioner while votes were being counted during May's elections, but denies fraud and refuses to quit.
Calls for Ms Arroyo's resignation have come from, amongst others, her former economic team.
The team, which includes finance secretary Cesar Purisima, quit last Friday.
A further nine cabinet members also resigned.
On Wednesday, Moody's said it had downgraded its outlook on its B1 long-term foreign-and local-currency ratings for the Philippines from stable to negative.
"Should there be a prolonged weakening of government effectiveness, or a change in government, future fiscal and external debt policies could be very different from that taken by the Arroyo government so far," Moody's said.
The ratings agency also pointed to a decision at the beginning of the month by the Philippines supreme court to suspend the introduction of a new value-added tax law, designed to reduce the country's massive budget deficit.
On Monday, Fitch and S&P said their outlook downgrades were influenced by the tax suspension, as well as by the uncertain political climate.