Despite hitting new high, Philippine debt still seen as sustainable

MANILA, Philippines — Despite recently hitting a new record high, the country’s debt remains broadly sustainable, with greater attention needed on rebuilding fiscal space to protect key services and prepare for future economic headwinds.

In an interview, World Bank Senior Economist Jaffar Al-Rikabi said the rise in debt stock reflects normal budget financing pressures.

READ: Government debt hits new high of P17.65 trillion

Fresh domestic and foreign borrowings pushed the national government’s outstanding debt to P17.65 trillion in November, exceeding the Marcos administration’s full-year program of P17.36 trillion for 2025.

“We are generally reassured that [debt] is very sustainable. There is no debt sustainability cause for serious concern,” Al-Rikabi said. 

“What we want to see on debt servicing costs is a fiscal consolidation program being implemented, not because we’re chiefly concerned about fiscal sustainability, but because we want to rebuild fiscal space so that the country can act for a future crisis,” he added.

Debt service

The debt service bill, according to the Department of Budget and Management’s National Government Debt Service Expenditures, is projected to decline to P2.005 trillion in 2026 from P2.054 trillion in 2025.

In this context, Al-Rikabi explained that managing interest expenditures is key to avoiding crowding out productive spending, ultimately rebuilding the fiscal space.

“We want to spend more of our budget on education, on health, on effectively implementing infrastructure projects. So you don’t want it to go increasingly on interest expenditure, which has grown over the last few years,” he said.

Interest payments are projected to reach P848 billion in 2025 and rise further to P950 billion in 2026. However, Al-Rikabi noted this growth is consistent with trends in many countries following the pandemic.

“It’s grown in most countries around the world. That’s why I say I think the focus is less on fiscal sustainability and more about how do you rebuild fiscal space so that you’re ready for the next crisis and you continue the need to spend productively,” Al-Rikabi explained. 

Debt levels in the Philippines ballooned after the pandemic, climbing to around 60 percent to gross domestic product (GDP) in recent years from less than 40 percent in 2019. But, so did other coutnries they increased.

READ: Philippine debt service bill dipped in Nov 2025 – Bureau of the Treasury

Even so, Al-Rikabi is optimistic that debt has actually been stabilizing, saying most countries would “dream” of having the kind of debt-to-GDP ratio the country has.

As it stands, the Philippines’ debt-to-GDP ratio was 63.1 percent during the third quarter, following an economic slowdown amid corruption scandals that weighed on public spending. This is above the 60 percent threshold of sustainability.

Supporting Al-Rikabi’s view, S&P Global Ratings reaffirmed the Philippines’ BBB+ long-term credit rating with a positive outlook. This signals that the country remains on track for the coveted “A” rating, with S&P citing ongoing fiscal consolidation, stabilized debt levels, and a robust external position as key factors.

“We forecast the Philippines’ net general government debt will come down to 41.8% (of GDP) by 2028 as fiscal consolidation takes hold,” S&P said.

S&P forecasted that the interest burden on debt servicing will decline to 12.4 percent by 2028, down from 13.5 percent in 2025, as “fiscal revenue picks up on improved collection efforts.”