Philippines National Debt Surpasses P18.5 Trillion Amid Fiscal Credibility Concerns

The national debt of the Philippines reached P18.55 trillion as of the end of May, marking a 0.4% month-on-month and 9.6% year-on-year increase. This rise was primarily driven by a net issuance of domestic securities amounting to P80.23 billion. Domestic borrowings now constitute 67.4% of the total debt, while peso appreciation helped in containing the revaluation of external debt. According to AB Capital Securities' The Opening Bell, this debt level is manageable only if nominal Gross Domestic Product (GDP) growth and fiscal execution recover. The concern is less about the monthly increase and more about the debt-to-GDP ratio, which reached 65.2% in the first quarter, exceeding the government's target range of 60% to 63%. Key sensitivities for this situation include GDP growth, primary deficit control, peso direction, and domestic yield levels. If growth remains near 4% and borrowing costs stay elevated, debt ratios could remain sticky. Conversely, if infrastructure spending improves without leakage and inflation eases, fiscal credibility can stabilize. AB Capital Securities suggests maintaining caution on long-duration assets and rate-sensitive sectors until fiscal execution improves. Companies with strong cash flows, low refinancing needs, and pricing power are favored. For banks, while increased domestic issuance supports securities supply, duration and mark-to-market (MTM) risks remain relevant. Source: Philstar Business