Philippine debt ratio climbs to highest level since 2004 as growth slows

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Philippine debt ratio climbs

Highlights

Philippine National Government debt stock reached P19.66 trillion at end-September, now 66.9% of GDP—the highest debt ratio since 2004.
GDP growth slowed to 2.1% year-on-year in July-September, the weakest excluding pandemic years since Q4 2009, exacerbating fiscal pressure.
The peso depreciated from P61.36 to P62.64 per dollar during Q3, raising the local value of foreign currency debt and increasing debt servicing costs.

Debt burden rises as output growth weakens

As reported by BusinessWorld Online, citing the Bureau of the Treasury, the National Government's debt stock reaches P19.66 trillion at end-September, up 0.27% from P19.61 trillion a month earlier. That level is already equivalent to about 99.47% of the government's projected P19.77-trillion outstanding debt stock by yearend.

Domestic debt accounts for 45.1% of GDP at end-September, rising from 44.2% at end-June, while external debt increases to 21.8% from 21%. The debt ratio is the highest since the 71.6% recorded at end-2004.

The economy grows by 2.1% year on year in the July-to-September period, the slowest GDP expansion in five years, or since the 3.8% contraction in the first quarter of 2021. Excluding the pandemic years, it is the weakest growth rate in more than 16 years, or since the 1.8% expansion in the fourth quarter of 2009.

Fiscal pressure builds as servicing costs rise

Ser Percival K. Peña-Reyes, senior research fellow at the Ateneo Center for Economic Research and Development, says the higher debt-to-GDP ratio reflects persistent budget deficits, continued borrowing for public spending, and slower-than-expected economic growth. He adds that the weaker peso also raises the local currency value of foreign currency-denominated debt, reinforcing pressure on the debt position.

The peso closes at P62.64 against the dollar on Sept. 30, weakening by P1.28 from P61.36 on June 30. Bureau of the Treasury data show peso-denominated debt accounts for 66.8% of outstanding obligations at end-September, while foreign currency-denominated debt makes up 33.2%.

Peña-Reyes says the debt level remains manageable, supported by a relatively deep domestic capital market, a predominantly peso-denominated debt portfolio, and access to international financing. Even so, he warns that fiscal space is becoming more constrained as higher interest payments, peso depreciation, global uncertainty, and potential external shocks make debt servicing more expensive.

He says the government needs faster economic growth alongside credible fiscal consolidation, including better tax collection, a broader tax base, lower revenue leakages, leaner spending, and prioritization of projects with high economic and social returns. He also says stronger private sector investment, a better business environment, and spending on infrastructure, education, and productivity-enhancing programs are needed so debt grows more slowly than GDP.

Our earlier article on planned Philippine sovereign bond reforms explained how a new pricing convention for peso-denominated government bonds and expected inclusion in a major emerging-market bond index could broaden the investor base and improve liquidity. It also noted that cheaper funding is not guaranteed and still hinges on global rates, exchange-rate expectations, and perceptions of fiscal credibility, while lasting gains depend on channeling any improved financing conditions into productive investment and deeper capital markets for businesses.

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