The Philippines has a "low" sovereign debt risk despite its ballooning obligations, but think tank Capital Economics cautioned that emerging markets (EMs) with better managed public finances should not rest on their laurels amid lingering fiscal strains.

In a June 12 report authored by Capital Economics senior EMs economist Liam Peach, the Philippines joined India, Indonesia, Vietnam, Thailand, Malaysia, Poland, Russia, Saudi Arabia, Israel, Morocco, Chile, and Uruguay in the EM group with "low risk, but fiscal position not bulletproof."

Capital Economics defined this group as having "generally strong public finances, but still [with] some risks around the fiscal stance."

The group in which the Philippines belongs "includes those with solid fiscal metrics, strong credit ratings and low bond spreads, but whose public finances are not bulletproof—these EMs are not immune to adverse fiscal developments and their public finances risk slowly worsening over a longer time horizon," the think tank explained.

Early this month, Finance Secretary Ralph G. Recto told Manila Bulletin that credit ratings agencies are "not worried" about Philippine public debt accumulation, which he said is outpaced by economic growth.

The national government's outstanding debt inched up to a new high of ₱16.75 trillion at end-April. By end-2025, the debt pile is projected to climb to a record ₱17.35 trillion.

Recto also noted that the Philippines' budget deficit, which is partly financed by borrowings, is on a downward trajectory.

As the Marcos Jr. administration embarks on fiscal consolidation to narrow the yawning budget deficit and lower the share of public debt to the economy following massive borrowings at the height of the Covid-19 pandemic, the World Bank Group (WBG) had projected the fiscal deficit to narrow gradually from 5.7 percent of gross domestic product (GDP) in 2024 to 5.4 percent in 2025, 4.9 percent in 2026, 4.4 percent in 2027, 4.1 percent in 2028, 3.9 percent in 2029, 3.7 percent in 2030, and 3.6 percent in 2031.

The debt-to-GDP ratio was also expected by the WBG to decline from 60.7 percent last year to 60.2 percent this year, 59.7 percent next year, 59.6 percent in 2027, 59.1 percent in 2028, 58.9 percent in 2029, 58.6 percent in 2030, and 58.1 percent in 2031, according to the Washington-based multilateral lender's newest six-year country partnership framework (CPF) for the Philippines.

At the end of the first quarter of 2025, the debt-to-GDP ratio climbed to 62 percent—the highest since the previous Duterte administration ramped up borrowings to fight the health and socioeconomic crises wrought by Covid-19.

The Marcos Jr. administration aims to reduce the debt-to-GDP ratio to below 60 percent by the time the President steps down in 2028. Before the pandemic struck, the public debt ratio fell to a record low of 39.6 percent in 2019.

Across all EMs, Capital Economics noted that "sovereign debt risks remain much higher than in the pre-pandemic period."

"The weaker state of EM public finances reflects larger debt burdens and budget deficits and higher interest costs. The EM median public debt-to-GDP ratio is now at 58 percent and rising, compared to 50 percent in 2019. The median EM government is now running a budget deficit of four percent of GDP, which is 1.5-percent-of-GDP higher than the pre-Covid average," the think tank noted.

"In the absence of significant fiscal tightening and lower borrowing costs, debt ratios are likely to rise further, putting upwards pressure on sovereign risk premia," it warned.

Among other EMs, Capital Economics cited that Sri Lanka, Ukraine, Ghana, Zambia, Lebanon, Venezuela, Ecuador, Tunisia, Angola, and Mozambique are already in default or at high risk of default.

Meanwhile, Argentina, Nigeria, Egypt, Turkey, Pakistan, Kenya, and Jordan are facing "elevated" sovereign debt risks, even as they enjoy short-term stability.

Capital Economics said South Africa, Brazil, Mexico, Colombia, Panama, Hungary, Romania, Ivory Coast, and Bahrain have "moderate risk" in their public debt levels, with medium-term debt sustainability concerns.

As for China, Czech Republic, Peru, the Baltic States, Kuwait, Qatar, and the United Arab Emirates (UAE), these EMs have "very low" sovereign debt risks, Capital Economics said.