The Philippines' public debt as a share to gross domestic product (GDP) rose in the third quarter alongside slower economic growth, even as private-sector debts continued to fall before the onset of downward interest rates.
The latest Global Debt Monitor of the Washington-based Institute of International Finance (IIF), released on Dec. 3, showed that the Philippine government debt ratio inched up to 57.4 percent at end-September 2024 from 56.7 percent a year ago.
This reversed the across-the-board drop in the Philippines' debt ratios a quarter ago, as the end-June government, households, financial sector as well as non-financial corporates debts slid compared to a year ago levels.
The IIF uses the general government (GG) debt—the same metric that credit-rating agencies monitor for their ratings actions, as it nets-out intra-government debt holdings—to monitor public debt, hence usually lower than the ratio that the Bureau of the Treasury (BTr) reports quarterly.
The latest Bureau of the Treasury (BTr) data showed that the national government debt-to-GDP ratio climbed to 61.3 percent as of end-September, from 60.2 percent a year ago, 60.9 percent a quarter ago, and 60.1 percent in end-2023.
To recall, third-quarter economic growth slowed to 5.2 percent, bringing the nine-month average to 5.8 percent. The national government's outstanding debt, meanwhile, jumped to a record P15.89 trillion at the end of the first nine months, posting an 11.4-percent year-on-year increase—doubly faster than GDP growth during the same period.
In contrast, the latest IIF data showed that Philippine private-sector debt ratios sustained their downtrend in the third quarter.
Households' debt ratio declined to 11.9 percent from 12.9 percent a year ago; the financial sector's end-September debt-to-GDP down to 6.7 percent from 8.1 percent last year; and non-financial corporates' debts as share to the domestic output at a lower 26.1 percent than a year ago's 28.5 percent.
Local economists had explained that the previously elevated interest rates before the Bangko Sentral ng Pilipinas (BSP) kick-started its easing cycle last August could have deterred private borrowings for productive economic activities.
This "double-edged sword" provided more space for additional future debts while keeping ratios manageable, although reduced borrowings would also mean missed expansion opportunities.
In a Dec. 2 blog, the Washington-based International Monetary Fund's (IMF) noted that in 2023, global debt decreased by around one percentage point (ppt) to 237 percent of world GDP, mainly due to lower private debts.
"Global private debt fell by 2.8 ppts to 143 percent of GDP, below the 2019 level and more than compensated for the turning up in public debt" that the IMF described as "high, rising, and risky."
In contrast to the riskier global public debts, the IMF said "empirical analysis points to low growth prospects as the main driver of the fall in private debt in 2023," citing its latest Global Debt Database.
"The way households and businesses react to current and expected future growth is very important for private debt. Given weak growth prospects many firms and households are opting to pay down debt," the IMF explained.
Overall, the Philippines' public and private debt-to-GDP ratios at the end of the third quarter of 2024 were all below the average of its emerging-market peers in Asia and globally, IIF data showed.
While emerging markets' government debts also rose like in the Philippines, the ratios for households and non-financial corporates likewise increased, jacking up their total outstanding obligations to a new high of $104.9 trillion or 245 percent of world GDP, according to the IIF.
"While the pace of global government debt accumulation between 2020 and 2024 was much slower than in the previous four years, large government budget deficits suggest a rapid acceleration in borrowing over the next four years. Global government debt levels are projected to approach $130 trillion by 2028—around 35-percent higher than the current level of around $95 trillion," the IIF said.
It does not help that for massive pandemic-related borrowings, "soaring government interest expenses could exacerbate fiscal strains, making debt management increasingly difficult in a volatile environment," the IIF added.
The proposed 2025 national budget showed that the Philippine government is setting aside a record P2.05 trillion to repay debts next year, of which more than P848 billion will settle interest slapped on borrowings.
From this year's total debt-service program amounting to P2.03 trillion, P763.4 billion worth will pay interest.
Based on the Cabinet-level, inter-agency Development Budget Coordination Committee's (DBCC) projections, interest payments shall continue to expand to P977.7 billion in 2026, P1.06 trillion in 2027, and P1.13 trillion in 2028.
"With significant amortizations due in 2025 and 2026, particularly in emerging markets, rising volatility could leave some sovereigns vulnerable to sudden shifts in investor sentiment, underscoring the risk of liquidity crises," the IIF warned.
In a separate report on Dec. 3, the World Bank revealed that "developing countries spent a record $1.4 trillion to service their foreign debt as their interest costs climbed to a 20-year high in 2023."
Citing its latest International Debt Report, the Washington-based multilateral lender noted that "interest payments surged by nearly a third to $406 billion, squeezing the budgets of many countries in critical areas such as health, education, and the environment."
"The Covid-19 pandemic sharply enlarged the debt burdens of all developing countries—and the subsequent surge in global interest rates has made it harder for many to regain their footing. At the end of 2023, the total external debt owed by all low- and middle-income countries stood at a record $8.8 trillion, an eight-percent increase over 2020," the World Bank said in a statement.
"In 2023, borrowing abroad became considerably more expensive for all developing economies. Interest rates on loans from official creditors doubled to more than four percent. Rates charged by private creditors climbed by more than a point to six percent—a 15-year high. Global interest rates have since begun to subside, although they are expected to remain above the average that prevailed in the decade before COVID-19," the World Bank added.
As such, the IIF cautioned against "pursuing expansive fiscal policies in an era of rising geo-economic fragmentation," citing that "heightened trade tensions could undermine growth prospects and trigger mini boom-bust cycles in sovereign debt markets, particularly as inflationary pressures resurface amidst a potential escalation in supply-chain disruptions and tightening public finances."