Philippine debt could climb to as much as 70.7 percent of gross domestic product by 2027 under a severe downside economic scenario, according to a sensitivity test that flagged the government’s growth assumptions as still too optimistic.
The estimate is not a forecast but forms part of the alternative growth scenarios developed by the Congressional Policy and Budget Research Department (CPBRD) to assess the risks to the government’s fiscal program.
‘It can be argued that the Development Budget Coordination Committee’s (DBCC) assumptions are notably optimistic when assessed against recent growth performance and prevailing macroeconomic conditions,’ the CPBRD said.
‘The fiscal conditions of the Philippines are likely to remain constrained over the near term. Even under ideal conditions, the debt and the deficit levels will remain notably elevated. Under more adverse conditions, we expect fiscal constraints to tighten even further,’ it added.
Currently, the DBCC is targeting 5 to 6 percent GDP growth in 2027, down from its original 5.5 to 6.5 percent target, with the debt-to-GDP ratio projected at 64.4 percent.
In terms of nominal GDP, the DBCC is projecting growth of 8.97 percent.
But under more severe conditions, the CPBRD said nominal GDP growth could slow to 3.2 percent in 2026 and 2.9 percent in 2027. The resulting debt-to-GDP ratio would reach 66.8 percent this year and 70.7 percent next year.
Under its moderate downside scenario, in which nominal GDP grows by 5.9 percent, the debt-to-GDP ratio would reach 67 percent in 2027.
‘It is worthwhile to emphasize that the recent reignition and escalation of conflict in the Middle East may increase the likelihood of the emergence of a more adverse scenario,’ the CPBRD said.
‘Another cause for concern emanates from rising bond yields and turmoil in the global bond market. Substantial interest rate hikes will invariably prove consequential to debt sustainability and the growth prospects of the Philippine economy,’ it added.
The CPBRD warned that further deterioration in growth could increasingly constrain fiscal space and weaken long-term fiscal sustainability, even as the proposed P7.2-trillion national budget may remain financeable under severe conditions.
‘The stakes for the 2027 budget deliberations are consequently significant. If growth and revenue performance fall below the DBCC baseline, fiscal space could become increasingly constrained over the medium term, limiting the government’s capacity to respond to future shocks and finance development priorities,’ the think tank said.
‘The 2027 national budget should serve not only as an expenditure program but also as a vital tool for enhancing fiscal resilience, safeguarding essential public services, and promoting sustainable and inclusive economic growth,’ it added.