The country’s total external debt grew by 7.3 percent to $139.64 billion as of end-September from $130.18 billion as of end-June, as foreign investors maximized gains amid anticipation of declining interest rates, a report from the Bangko Sentral ng Pilipinas (BSP) said.

Compared to September last year, BSP said the country’s debt stock rose by 17.5 percent to $118.83 billion.

BSP said the latest figure pushed up the external debt ratio as a percentage of the country’s gross domestic product to 30.6 percent in the third quarter from 28.9 percent in the previous quarter. Nevertheless, BSP said this ratio remained at a “prudent” level.

BSP added that the country’s foreign borrowings secured “sustainable” gross international reserves of $112.71 billion as of end-September, which can cover short-term debt based on remaining maturity by 3.92 times.

Breaking down the total external debt, public sector loans rose by 8.8 percent to $86.88 billion from $79.83 billion, while private sector loans grew by 4.8 percent to $52.76 billion from $50.36 billion.

The public sector loans consisted of the national government’s debt worth $80.13 billion or a 92.2 percent share, while the remaining 7.8 percent or $6.76 billion of debt involved government-owned and controlled corporations, government financial institutions, and the BSP.

Previously, the national government issued triple-tranche fixed-rate global bonds worth $2.5 billion and obtained $1.44 billion from official creditors to finance its various projects.

BSP said the net acquisition by non-residents of Philippine debt securities, including those issued by the private sector, stood at $2.77 billion “amid anticipation of a US Federal Reserve rate cut in September and weakening of the US dollar during the third quarter.”

The private sector also sought capital from external sources at $52.76 billion, up by 4.8 percent from $50.36 billion posted in the second quarter.

BSP attributed the growth to local banks’ foreign loans amounting to $2.52 billion, which their executives used to support operations and asset growth.

The net acquisition by non-residents of debt securities issued offshore stood at $599.04 million. An additional $163.4 million was registered by the private sector due to foreign exchange movements.

Japan is top lender

Major creditor countries were Japan, which lent $15.38 billion, the Netherlands with $4.61 billion, and the United Kingdom with $4.51 billion.

The bulk of the loans, amounting to $52.43 billion or 37.5 percent, came from official sources or multilateral and bilateral institutions, followed by bond and note issuances with a 34.1 percent share.

Finance Secretary Ralph Recto said the national government plans to borrow more funds through US or Euro bonds in the first half of 2025. He said the government is considering raising at least P300 billion.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. and former BDO Unibank Inc.’s chief market strategist, said the government will continue to borrow more funds to implement its massive infrastructure projects amounting to over P9 trillion.

To ensure long-term economic growth, Ravelas advised the government to boost its spending, including strategic borrowing, which he compared to bodybuilding.

“If you moderate your eating and you don’t eat carbs, you become lethargic. It’s okay to eat a lot of carbs because we’re a growing economy, so forget about the debt-to-GDP ratio of 60 percent,” he stressed.

Recto said the government will continue to mostly borrow from domestic sources, with a 75 percent share versus foreign loans at 25 percent, to minimize spending against foreign exchange fluctuations.

Jonathan Fortun, economist at the International Institute of Finance, said the Philippines and other emerging economies might need to find sources of tax revenues to not only sustain debt payments, government projects, and imported goods and services for production activities but also to implement responses to climate change.

Emerging markets

IIF expects the debt of emerging markets to surge as the economies of the G20 countries slow down while they mobilize $1.3 trillion in annual funding for developing countries’ climate projects.

“Given the chronic underestimation of actual government spending needs in official public debt statistics, debt levels could rise even higher, particularly when accounting for the climate-related spending required to stay on track with net-zero targets and national climate commitments,” Fortun said in a recent IIF report.

IIF said emerging markets’ debt could contribute to a global debt of $170 trillion by 2028.

In January, Department of Finance Secretary Ralph Recto said he was not looking to introduce new taxes soon on consumer goods, which usually include excise taxes for augmenting government revenues, to prevent inflation from spiking.

However, Recto supports the Single-Use Plastic Bags Tax Act, which will require at least P100 per kilogram excise tax on thin plastics for an additional government revenue of P31.5 billion, along with its impact on waste and carbon emissions reduction.

He also pushes for tax adjustments under the Real Property Valuation Reform, which aims to update property zonal values, and the Motor Vehicle User Charge.

Manageable indebtedness

“Today, 50 percent of vehicles are unregistered, and if you impose higher taxes, maybe more vehicles will not be registered. We have to temper these taxes because they’re also inflationary,” Recto said.

“Our debt is manageable. There is no fiscal crisis, unlike in the early 2000s when the debt-to-GDP (gross domestic product) ratio was high at 70 to 75 percent,” he added.

While the government is still studying new taxes, Recto said officials are anticipating higher foreign direct investments backed by the government’s recently enacted tax incentives and job-generation programs, and the country’s young workforce. Recto expects its debt-GDP ratio to fall below 60 percent in the next four years.

The government recently enacted the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act and amendments to the Public-Private Partnership Code, which enables the government to share construction and management costs and financial risks of infrastructure projects with private companies in minimizing foreign loans.