A storm is brewing in the Philippine economy. The government’s debt has ballooned to its highest level in over two decades, swallowing 65.2% of everything the nation produces. This alarming milestone marks the steepest debt-to-GDP ratio since 2005.
By the end of March, total outstanding debt had climbed to a staggering P18.49 trillion. That’s nearly P330 billion more than just a month earlier. Meanwhile, the economy sputtered—growing at just 2.8% in the first quarter, the weakest pace since the pandemic crushed activity.
The culprit? A brutal oil shock that has dampened consumer spending and sent inflation soaring. This toxic combination is squeezing households while the country’s borrowing costs keep rising.
Here’s the twist: much of the debt jump is an illusion—fueled by a weakening peso. As the currency slides, the value of foreign-currency loans balloons, making the numbers look far worse than the underlying fiscal reality. Most of the government’s borrowing—nearly 68%—is in pesos, shielding it from the worst of the exchange-rate shock.
Domestic debt ticked up barely 0.4% to P12.53 trillion. External debt, however, surged nearly 5% to P5.95 trillion, driven almost entirely by the peso’s free fall. The currency hit a record low of P61.567 to the dollar by late April.
The government has tried to cushion the blow, suspending excise taxes on liquefied petroleum gas and kerosene, and rolling out subsidies and fuel discounts for the most vulnerable. But the damage is already showing: inflation accelerated to 7.2% in April—more than five times the rate a year earlier.
One economist warned that the real crisis isn’t the debt number itself—it’s what the government chooses to do next. Slashing support during a downturn would only deepen the pain. Instead, the only way to stabilize the economy is to use public funds to provide relief, protect livelihoods, and reignite growth.
The government’s own budget projects total debt hitting P19.06 trillion by year-end. Officials aim to bring the debt-to-GDP ratio down to 58% by 2030. But with growth slowing and inflation raging, that target feels like a distant hope.
