Philippines Debt-to-GDP Ratio Hits 22-Year High Amid Growth Concerns

The share of national government debt to gross domestic product (GDP) in the Philippines breached a 22-year high of 66 percent as of end-June, signaling potential challenges in debt reduction efforts amidst sluggish economic growth and weak investment. This figure represents an increase from 65.2 percent at the end of March and is the highest since the 71.6 percent recorded at the end of 2004. Ruben Carlo Asuncion, chief economist at UnionBank, stated that while the 66 percent debt-to-GDP ratio warrants close monitoring, it "remains manageable" provided economic growth recovers and fiscal consolidation stays on track. He attributed the increase not only to the government's financing needs but also to a slower pace of economic growth. The weaker-than-expected GDP growth of 2.3 percent in the second quarter likely contributed to the higher ratio, as slower economic expansion mechanically raises debt relative to GDP. "The more important question is whether the economy can grow fast enough to stabilize and eventually reduce the debt burden over time. Debt becomes more difficult to manage when growth remains weak, revenues underperform or borrowing costs rise significantly," Asuncion warned. The country's outstanding national government debt reached a new record high of P19.07 trillion at the end of June, a 2.8 percent increase from P18.55 trillion in May, surpassing the year-end projection of P19.06 trillion. Asuncion noted that while the Philippines continues to benefit from a deep domestic funding market and access to external financing, the latest debt ratio suggests that fiscal space is becoming more constrained. Policymakers will need to carefully balance growth-supportive spending with fiscal consolidation objectives. Treasury data indicates that domestic debt still constitutes the majority of the debt stock at 67.3 percent, with external sources making up the rest. Domestic debt rose by 2.7 percent to P12.84 trillion, while external debt increased by 2.9 percent to P6.23 trillion. Asuncion reiterated that stronger economic growth is the "most sustainable way" to improve the debt-to-GDP ratio. However, he cautioned that slower economic growth and softer investment activity could make debt reduction more challenging over time, underscoring the need to boost the economy's growth drivers. Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., commented that debt is evolving from a purely fiscal issue into a growth issue. "Without a credible plan to expand revenues, improve spending efficiency and accelerate private sector investment, the burden of today’s debt will increasingly be passed on to future generations," he stated. The Marcos administration's Philippine Development Plan 2023-2029 Midterm Update projects the debt-to-GDP ratio to be between 60 to 63 percent this year, 59 to 62 percent in 2027, and 58 to 61 percent in 2028.