In his March 2026 article in the IMF’s Finance & Development, Alan J. Auerbach quoted Ernest Hemingway’s The Sun Also Rises. Asked how he went bankrupt, a character answered: “Two ways. Gradually, then suddenly.”

That is a useful way of thinking about public debt.

Debt problems rarely begin with one spectacular borrowing decision. They accumulate quietly — one deficit, one bond issue, one infrastructure program, one emergency appropriation at a time. For years, everything may appear manageable. Then the accumulated debt begins to constrain the choices government can make.

The Philippines should be careful that we do not borrow our way to that point.

The warning signs are becoming harder to ignore. Economic growth has slowed sharply. Real GDP grew by only 2.3% in the second quarter of 2026, the weakest quarterly performance outside the pandemic years since 2009. The economy that once routinely grew above 6% is now struggling to maintain momentum.

Meanwhile, National Government debt has continued to rise. From P13.4 trillion at the end of 2022, it reached P19.1 trillion by end-June 2026.

Debt is rising while growth is slowing.

That combination should make us uncomfortable.

There is, of course, nothing inherently wrong with government borrowing. A country cannot build all the infrastructure, human capital, and productive capacity it needs simply by paying for everything out of current revenues. Borrowing can allow government to build today what will generate economic value for many years.

A good railway, a reliable power system, an efficient port, digital infrastructure, quality education, or climate-resilient infrastructure can raise productivity and incomes long after the loan has been contracted.

The problem is not borrowing.

The problem is what we do with what we borrow.

This is where the public debate often becomes too convenient. Government needs to spend more to generate growth. Revenues are not enough, so government borrows. The spending is then called investment.

But spending is not investment simply because it appears in a development budget.

Investment leaves something behind.

A productive asset leaves behind higher capacity, greater efficiency, more jobs, higher incomes, or stronger future revenues. A peso that disappears into inefficient spending, cost overruns, weak procurement, or a badly chosen project leaves something else behind.

A liability.

And the creditor does not care whether the project succeeded. The principal and interest still have to be paid.

That distinction becomes particularly important now because the economy is no longer delivering the growth rates that fiscal planning may have assumed. Real GDP slowed from 7.6% in 2022 to 4.4% in 2025, before the sharp slowdown in the second quarter of this year. Weaker growth means weaker revenue growth, while debt service continues to demand its share of the budget.

This is where debt arithmetic becomes unforgiving.

When growth is strong, revenues generally rise more easily and the economy’s productive base expands. When growth weakens, the denominator in the debt-to-GDP ratio loses momentum while the numerator continues to grow. Interest payments do not slow down simply because GDP does.

The costs are showing

National Government interest payments have risen steadily, reaching P864.1 billion in 2025, with the 2026 budget programmed at about P950 billion. On top of this comes roughly P1 trillion in annual principal repayments.

These are not abstract numbers.

Every peso committed to debt service is a peso that cannot be used somewhere else.

Education. Health. Infrastructure. Digital transformation. Social protection.

The cost of today’s borrowing is therefore not simply today’s interest expense.

It is tomorrow’s lost fiscal space.

This does not mean that the Philippines should stop borrowing. That would be as simplistic as saying that every borrowing program is automatically productive.

The more useful lesson from the latest debt literature is that there is no magic debt-to-GDP threshold at which every country suddenly becomes unsafe. The IMF’s recent work covering 105 countries shows that debt-carrying capacity varies considerably, depending on institutional quality and governance, debt composition, repayment history, and the development of financial markets.

Debt ratios matter. But they are indicators, not verdicts.

The usual threshold of 60% debt-to-GDP ratio does not mean exactly the same thing for every country. What matters is whether the country has the growth prospects, revenues, institutions, and financial capacity to carry that debt, and whether it can withstand the next shock.

A balance sheet perspective

This is why looking only at the liability side of government finances can also be misleading.

If government borrows P100 billion and creates productive public assets that raise future economic capacity, the balance sheet looks very different from borrowing P100 billion for expenditures that disappear once spent. The IMF’s increasing emphasis on government net worth and public investment efficiency is therefore particularly relevant.

The question is not simply how much government owes.

The question is what government owns because it borrowed.

This brings governance squarely into the debt debate.

A borrowed peso can become a productive road, bridge, port, power system, or digital network. It can also be dissipated through corruption, poor project selection, procurement failures, political considerations, cost overruns, and delays.

The debt is the same.

The return is not.

That is why governance and institutions matter so much. Strong institutions increase the probability that borrowed money will actually become productive assets. Weak institutions do the opposite. They allow the borrowing to remain while the expected economic return disappears.

Debt as an intergenerational problem

This also explains why debt can become an intergenerational problem.

If today’s borrowing creates an asset that serves Filipinos for 30 years, future generations inherit both an asset and a liability. If the project produces little lasting value, they inherit mostly the liability.

That is not investment in the future.

It is a transfer of today’s obligations to tomorrow’s taxpayers.

There is another risk that deserves more attention: government does not borrow in an empty financial market. Large-scale borrowing can increase risk premiums and interest rates and crowd out private investment. The private investment needed to raise productivity may then be weakened by the very borrowing intended to generate growth.

That would be an extraordinary irony.

We borrow to create growth, only to make it harder for the private sector to invest for growth.

This is why fiscal planning cannot rest on an optimistic growth assumption. A debt strategy that works only if GDP grows by six or seven percent, interest rates remain benign, the peso stays stable, and revenues keep rising is not a resilient strategy.

It is a forecast with a prayer attached to it.

Government should know what happens if growth is only three or four percent. It should know what happens if interest rates remain high, the peso weakens, revenues disappoint, a major typhoon strikes, another pandemic emerges, or contingent liabilities suddenly materialize.

Stress testing

Stress testing is not pessimism.

It is responsible borrowing.

The Philippines still has enormous public investment needs. Infrastructure, energy, transport, water, education, health, digital connectivity, and climate resilience cannot simply be postponed because debt has increased.

But higher debt makes prioritization more important, not less.

Borrowing for growth makes sense when the investment raises productivity and future revenues sufficiently to exceed the cost of borrowing. It makes sense when institutions are capable of delivering the promised returns. It makes sense when the resulting debt remains manageable even if growth, interest rates, revenues, or the exchange rate turn out worse than expected.

Once borrowing begins to finance expenditures that do not increase productive capacity, government is no longer investing in future growth.

It is borrowing against future fiscal space.

That is the distinction we need to recover.

The real danger is not debt itself. It is debt growing faster than the economy’s capacity to service it.

The objective, therefore, should not be to minimize public debt at all costs. Nor should it be to maximize government spending in the hope that spending will somehow manufacture growth.

The objective should be to maximize the economic and public value generated by every borrowed peso.

A higher standard

There is a much higher standard.

The Philippines does not need a war against borrowing. It needs a higher bar for borrowing.

We should ask whether a proposed loan finances a genuine productive investment, whether the expected return exceeds the cost of the debt, whether institutions can deliver the project efficiently, and whether the fiscal position can survive a less favorable economic environment.

That is more meaningful than obsessing over whether the debt ratio has crossed some supposedly magical line.

Debt sustainability is ultimately about more than arithmetic.

It is about credibility.

Creditors must believe that government can repay. Taxpayers must believe that borrowed money is being used responsibly. And future generations must have reason to believe that they are inheriting productive assets rather than simply inheriting today’s obligations.

The danger today is not that the Philippines is borrowing.

It is that we may begin to mistake the accumulation of debt for the accumulation of growth and wealth.

They are not the same thing.

Borrowing can be a bridge to higher growth. But only if what we build on that bridge raises the economy’s productive capacity.

Otherwise, the bridge leads somewhere else. And that is to a larger bill for the future.

Hemingway’s character had two ways of going bankrupt: gradually, then suddenly.

For governments, the gradual part can last for decades.

The responsibility for the Philippine Government is to make sure we do not discover the second part when it is already too late.

Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.