Philippines' Debt Remains High Amid Pandemic Loan Repayments, Finance Secretary Recto Warns

Finance Secretary Ralph Recto emphasized on August 5 that the Philippines continues to face high debt levels due to ongoing repayments of pandemic-era loans. Speaking at the House of Representatives, Recto underscored the importance of understanding the debt-to-GDP ratio to measure the country's economic health.

Finance Secretary Recto Highlights Pandemic Debt Burden and Future Economic Growth Potential

The Philippines still owes a lot of money because the old government took out loans that must be paid back during the pandemic. On August 5, Finance Secretary Ralph Recto reminded the people of this.

In his speech at the House of Representatives, where the proposed P6.352 trillion budget for 2024 was discussed, Recto said that the Philippines had its lowest debt-to-gross domestic product (GDP) ratio ever in 2019 when Rodrigo Duterte was president. The ratio was 39.6 percent.

According to INQUIRER.net, Recto said the debt-to-GDP ratio shows how much a country owes compared to its economy's worth. In 2019, the Philippines had P7.7 trillion in debt and P19.5 trillion in GDP. However, by the end of Duterte's term, the total debt had almost doubled to P13.4 trillion, which was 60.9 percent of the P22.0 trillion GDP that year.

“It is also important to note that while we are making these investments, we’re also paying off the pandemic borrowings we inherited from the past administration. In 2019 when the country achieved its lowest debt-to-GDP ratio, the total nominal debt was only P7.7 trillion, but this figure nearly doubled to around P13.4 trillion right after the pandemic just as the Marcos Jr. administration took over,” Recto told lawmakers.

“And because of all these geopolitical tensions the cost of our borrowing has climbed post-pandemic, as central banks have raised their interest rates to combat inflation. Therefore we are now refinancing the large borrowings contracted during the low-interest rate period in 2020 to 2022 with new debts at their higher interest rates. This is why our interest payments next year are higher by around 11 percent,” he added.

Recto also clarified that the debt-to-GDP ratio is the right way to measure the country's ability to pay back loans, even though its debt looks big—it's expected to reach nearly P16.1 trillion by the end of 2024.

This number has decreased for the Philippines, from 60.9 percent of GDP in 2022 to 60.1 percent in 2023.

The debt-to-GDP ratio increased slightly in 2024 to 60.6% of GDP. However, Recto's slides showed that they think it will go down to 56.3% in 2028, when the debt will be P20.7 trillion, and the GDP will be P36.9 trillion.

“We should not be alarmed by this, because the debt of a country should not be measured just by looking at its actual size. It’s better to compare it with the country’s economy because this is how we determine its ability to pay the loan, and one of the correct ways to measure is through the debt-to-GDP ratio,” Recto said.

“Based on the chart, it seems that debt is steadily increasing, but our economy is also growing even stronger. This means we can pay our obligations. If you would take a look at the Philippines’ debt-to-GDP ratio, we have started bringing it down from 60.9 (percent) in 2022, it’s now down to 60.1 in 2023, and we are determined to continue pushing it below 60 percent so we have enough buffer in case another crisis hits us,” he noted.

Recto Assures Public on Manageable Debt Levels as 2025 National Budget Discussions Begin

In the past, Recto was reported as saying, "Be calm," pointing out that the country's debt is still manageable at around 60%.

The national budget 2019 is P6.352 trillion, of which P876.7 billion, or 13.7%, will be used to pay off debt.

So that the government could pay for its reaction to the COVID-19 pandemic, the Duterte administration made a record P2.74 trillion in 2020. What the government borrowed in 2019 was only P1.02 trillion, so this was more than twice that amount.

The country's debt reached P12.68 trillion a week before Duterte left office.

The House of Representatives officially began discussing the planned P6.352 trillion national budget for 2025 earlier today at the committee level. Speaker Ferdinand Martin Romualdez led the hearing.

The Development Budget Coordination Committee (DBCC) started the briefing by discussing its plans and fiscal policies for the House Committee on Appropriations.

Part of the DBCC is the Department of Finance, which Recto runs. Other members are the Department of Budget and Management, the National Economic and Development Authority, the Office of the President, and the Bangko Sentral ng Pilipinas.