Weaker peso bloats government debt
The national government’s outstanding debt climbed to a fresh record high of P18.49 trillion at end-March, nearing its programmed ceiling for the year as the continued depreciation of the peso inflated the value of foreign obligations.
According to the Bureau of the Treasury (BTr), the latest debt level was nearly 2 percent higher than the P18.16 trillion recorded in February, marking the sixth straight month of increase.
As early as March, the debt stock had already reached about 97 percent of the Marcos administration’s P19.06-trillion programmed ceiling for 2026, with the government set to borrow P2.68 trillion this year.
The figure is now 65.2 percent of the country’s gross domestic product.
The local economy grew at a slower pace of 2.8 percent in the first quarter from 3 percent in the previous one as the oil shock from the Middle East war added to pressures from a major infrastructure graft scandal.
Still, economists said the current debt level remained sustainable for now, although risks are mounting as the peso weakens and global uncertainties persist.
Sovereign debt “can increase beyond the programmed level if the peso remains weak for a prolonged period, especially since a portion of our debt is denominated in foreign currency,” said John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies.
“A weaker peso increases the peso value of external debt even without new borrowings. But this does not necessarily mean debt sustainability is deteriorating sharply. Part of the increase is a valuation effect rather than purely additional borrowing,” he added.
For Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., debt levels remain manageable, although there’s now very little room for errors.
“We’re not facing a debt crisis, but we are clearly stretched. With growth slowing and interest rates still high, debt servicing is getting more expensive and that’s where the real risk lies,” he said.
The BTr attributed the latest increase mainly to peso depreciation and higher domestic borrowings, as geopolitical tensions in the Middle East continued to lift the dollar and pressure emerging market currencies.
“In particular, domestic debt rose to P12.53 trillion, up by P55.4 billion or 0.44 percent from the previous month, mainly due to net issuance of government securities amounting to P46.72 billion,” the BTr said in a statement on Wednesday.
“In addition, peso depreciation contributed P8.68 billion to the peso value of foreign currency-denominated domestic securities,” it added.
The peso came under sustained pressure in March as the dollar strengthened amid the escalating Middle East war. It breached the P60-per-dollar level for the first time in March.
Meanwhile, external debt jumped 4.81 percent month-on-month to P5.95 trillion, largely due to currency revaluation effects.
“If the peso stabilizes and fiscal consolidation continues, debt growth may remain manageable. But if external shocks persist and borrowing needs rise further, debt levels could face additional upward pressure,” Rivera said.
