By Justine Irish D. Tabile, Senior Reporter

The Philippines' debt-to-gross domestic product (GDP) ratio reached 66% in the second quarter, marking its highest level since 2004, according to data from the Bureau of the Treasury.

The figure represents an increase from the 65.2% recorded at the end of the first quarter and the 63.2% ratio at the end of 2025. It is also the highest reading in 22 years, dating back to the 71.6% level posted at the end of 2004. The ratio has climbed significantly from the roughly 39% level recorded before the pandemic, when aggressive fiscal stimulus and revenue shortfalls sharply expanded the government's borrowing footprint.

The latest reading also sits above the 60% threshold commonly cited by multilateral institutions such as the International Monetary Fund as a prudent benchmark for emerging market economies, a level that sovereign credit rating agencies typically monitor when assessing fiscal sustainability and assigning sovereign ratings.

The rise came as the National Government's (NG) outstanding debt climbed 2.8% to P19.07 trillion at the end of June, up from the P18.55 trillion recorded at the end of May.

"The increase reflects not only the government's financing requirements but also the slower pace of economic growth," said Ruben Carlo O. Asuncion, Chief Economist at Union Bank of the Philippines, in a Viber message.

"The weaker-than-expected GDP growth of 2.3% in the second quarter likely contributed to the higher ratio, as slower economic expansion mechanically raises debt relative to GDP," he added.

The Philippine economy grew by 2.3% year-on-year in the second quarter, decelerating from the 5.4% expansion recorded in the same period a year earlier and the 2.8% growth posted in the first quarter. This marks the slowest growth since the 3.8% contraction in the first quarter of 2021 during the coronavirus pandemic. Excluding the pandemic years, it was the weakest pace in over 16 years, or since the 1.8% expansion in the fourth quarter of 2009. The slowdown compounds the debt challenge, as the denominator in the debt-to-GDP ratio grows more slowly while borrowing continues to fund government operations and infrastructure commitments.

"The Philippines continues to benefit from a relatively deep domestic funding market and access to external financing," Mr. Asuncion said. "However, the latest debt ratio suggests that fiscal space is becoming more constrained, which means policymakers will need to carefully balance growth-supportive spending with fiscal consolidation objectives."

Domestic debt accounted for the bulk of the total debt stock at 67.3%, with the remainder sourced externally. Domestic debt edged up 2.74% to P12.84 trillion at the end of June from P12.5 trillion at the end of May, while external debt rose 2.92% to P6.23 trillion from P6.05 trillion over the same period. The heavy reliance on domestic borrowing shields the government from sharp foreign exchange volatility, though it also crowds out private-sector access to local credit, a dynamic that can weigh on investment and growth.

Despite the elevated ratio, Mr. Asuncion maintained that debt levels remain manageable.

"The 66% debt-to-GDP ratio warrants close monitoring, but it remains manageable, provided economic growth recovers and fiscal consolidation remains on track," he said.

He identified stronger economic growth as the most sustainable path to improving the debt-to-GDP ratio.

"Faster growth supports revenue generation, improves debt dynamics, and creates greater fiscal flexibility. In this regard, restoring business confidence, encouraging private investments, and accelerating productive public investments will be critical," Mr. Asuncion said.

"The challenge is that slower growth and weak investment activity can make debt reduction more difficult over time, underscoring the need to strengthen the economy's growth drivers," he added.

Jonathan L. Ravelas, Senior Adviser at Reyes Tacandong & Co., offered a more cautious assessment, stating that debt was increasingly becoming a constraint on economic expansion.

"Debt is no longer just a fiscal issue. It is becoming a growth issue," he said in a Viber message. "Without a credible plan to expand revenues, improve spending efficiency, and accelerate private-sector investment, the burden of today's debt will increasingly be passed on to future generations."

The end-June debt stock already slightly exceeded the P19.06-trillion level projected for the end of 2026 under the 2026 Budget of Expenditures and Sources of Financing.

Under the Philippine Development Plan 2023-2029 Midterm Update – Results Matrices, posted on May 20, the government projects the debt-to-GDP ratio to settle at 60%-63% in 2026. The ratio is expected to decline further to 59%-62% in 2027 and to 58%-61% by 2028. Achieving those targets will depend heavily on a meaningful growth recovery, as the government's own assumptions are built on the premise that GDP expansion will outpace the pace of debt accumulation in the coming years.