THE national government’s outstanding debt relative to the size of the gross domestic product (GDP) climbed to a 22-year-high in the second quarter, after the economy grew disappointingly and the debt stock continued to climb.
The debt-to-GDP ratio rose to 66 percent in the second quarter, the highest since 2004 at 71.6 percent, according to data released by the Bureau of the Treasury on Friday.
Domestic debt as a share of GDP stood at 44.4 percent, while the proportion of external liabilities settled at 21.6 percent.
‘[This] suggests that the country’s fiscal position has become more constrained, largely reflecting the combination of continued government borrowing and slower-than-expected economic growth,’ said Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion to BusinessMirror.
As of end-June, the debt stock was at an all-time high of P19.065 trillion, while GDP expanded by 2.3 percent in the second quarter.
The latest debt-to-GDP ratio is also higher than the 65.2 percent recorded in the previous quarter and 63.1 percent in the same period in 2025.
It also exceeded the 64.9 percent target for 2026 recently recalibrated by the Development Budget Coordination Committee last June.
‘The economy is not growing fast enough to outgrow the debt,’ Jonathan A. Ravelas, senior adviser at Reyes Tacandong and Co., told BusinessMirror. ‘Until growth accelerates meaningfully and the fiscal gap narrows, the debt-to-GDP ratio is likely to remain under pressure.’
Having a high debt-to-GDP ratio could suggest the country is not producing enough to pay its debts, while a low level could mean it produces too much output to make the payments.
‘The economy, which serves as the denominator of the ratio, is expanding more slowly than anticipated, making it more difficult to stabilize debt metrics,’ Asuncion said.
Despite being elevated by historical standards, Asuncion said the debt ratio remains manageable.
‘The key issue is whether economic growth can accelerate in the coming quarters and whether the government can maintain a credible path toward fiscal consolidation,’ Asuncion said.
While the country’s budget deficit will widen in peso terms through 2028, as a share of GDP, it will narrow to 5.4 percent this year and further to 5.1 percent in 2027 and 4.8 percent in 2028.
President Ferdinand R. Marcos Jr. has pushed for a higher personal income-tax exemption and the removal of corporate income tax for qualified small businesses in his recent State of the Nation Address.
In doing so, this would result in P326.92 billion in foregone revenues if implemented from 2027 until 2030, according to the Department of Finance (DOF).
To offset the losses, the DOF proposed expanded excise taxes on e-cigarettes, novel tobacco, sugar-sweetened beverages, alcohol, as well as an automobile tax to generate a total of P518.71 billion over the four-year period.
‘Any tax relief measures will need to be calibrated carefully,’ Asuncion said. ‘The challenge for policymakers is to strike a balance between supporting growth and preserving fiscal sustainability.’
The best way to improve the country’s debt dynamics is to achieve stronger and broader-based economic growth through higher investments, improved productivity and sustained job creation, he added.
‘Investors and rating agencies tend to focus not only on the level of debt but also on the government’s ability to manage it over the medium term,’ Asuncion said.
While a rising debt burden could put upward pressure on government bond yields if investors demand a higher risk premium, Asuncion said market movements would also depend on inflation, monetary policy expectations, fiscal performance and liquidity conditions.
It is also unlikely to prompt an immediate sovereign credit rating action given the latest debt-to-GDP ratio, as rating agencies also consider economic growth prospects, fiscal trends, debt affordability, external accounts and institutional strength, Asuncion said.
‘However, a sustained rise in debt accompanied by below-trend growth could place greater scrutiny on the country’s fiscal outlook over time,’ he warned.