Debt-to-GDP ratio rises to 2-year high 62%

More borrowings, slower economic growth

MANILA, Philippines —  The share of national debt to the country’s output jumped to a two-year high of 62 percent in the first quarter after the government borrowed more to frontload expenditures, with the ratio moving further above the internationally accepted threshold.

Data from the Bureau of the Treasury showed that the country’s debt level, when measured against gross domestic product (GDP), increased to 62 percent in the first quarter from the end-2024 level of 60.7 percent.

The first quarter debt-to-GDP ratio effectively hit a two-year high after the 63.7 percent in the third quarter of 2022, when the government was initially reeling from the impact of pandemic debts.

Domestic debt as a share of GDP went up to 42.3 percent, while the proportion of foreign obligations further increased to 19.7 percent.

Similarly, the latest ratio is above the 60.4 percent target for the year as set by the Cabinet-level Development Budget Coordination Committee. As of end-March, the national debt is at a record P16.68 trillion.

As such, the current debt-to-GDP ratio moved higher from the 60-percent internationally accepted threshold,  putting  the Philippines at a vulnerable spot in terms of its capacity to settle its financial obligations.

In a message to The STAR, Finance Secretary Ralph Recto said  the higher debt-to-GDP ratio was due mainly to the program expenditure for the year. “Some expenditures are front loaded while the weather is good, for the first two quarters,” Recto said.

“By the end of the year, the deficit will be 5.3 percent. The debt-to-GDP will be on target,” he said.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the latest ratio is consistent with the March budget deficit, which almost doubled to P375.7 billion after state revenues slid by three percent while spending jumped by 35 percent.

He added that the debt ratio only increased the urgency for tax and other fiscal reform measures in order to sustain the country’s favorable credit ratings and more so prevent a downgrade from happening.

Recto, however, earlier said the administration sees no need for additional revenue measures at this time.

Over the coming quarters, Ricafort said slashing the debt ratio would depend on faster economic expansion, narrowing of the deficit through better tax collections and more disciplined spending.

Meanwhile, Recto said the government is confident in achieving its growth target in the next quarters, driven by its steady fiscal consolidation, easing inflation and progress in trade negotiations with key partners.

As inflation continues to cool down, private spending is expected to improve. The finance chief is also banking on the Bangko Sentral ng Pilipinas to further cut policy interest rates to help boost the spending power of Filipinos, attract more investments and grow the economy.