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The National Government’s (NG) outstanding debt hit a fresh high of PHP 15.69 trillion as of end-July amid an increase in domestic and external borrowings, the Bureau of the Treasury (BTr) said.

Data from the BTr on Tuesday showed that the NG’s debt level rose by 1.33% as of end-July from PHP 15.48 trillion as of end-June.

“The NG’s debt portfolio has increased by PHP 206.49 billion or 1.3% from the end-June 2024 level, primarily driven by the net issuance of both domestic and external debt,” the BTr said in a press release.

Year on year, outstanding debt jumped by 10.15% from PHP 14.24 trillion as of end-July 2023.

The debt stock as of end-July already represents 97.71% of the P16.06-trillion total debt projection by yearend, according to the latest Budget of Expenditures and Sources of Financing data.

More than half (68.54%) of the debt came from domestic sources, while the rest (31.46%) came from foreign sources, the BTr said.

Domestic debt as of end-July rose by 1.7% to PHP 10.75 trillion from PHP 10.57 trillion last month. Year on year, it jumped by 9.6% from PHP 9.81 trillion in July 2023.

“The rise in domestic debt was mainly due to the PHP 180.52-billion net issuance of government securities, although partially tempered by the PHP 0.49-billion downward revaluation effect of peso appreciation on US dollar-denominated domestic securities,” the BTr said.

The peso closed at PHP 58.488 at the end of July, strengthening by 17 centavos from PHP 58.659 at end-June.

Government securities accounted for nearly all of domestic debt at PHP 10.752 trillion, according to BTr data.

On the other hand, external debt inched up by 0.54% to PHP 4.94 trillion as of end-July from PHP 4.91 trillion at the end of June. Year on year, foreign debt increased by 11.4% from PHP 4.43 trillion.

“The rise in external debt can be attributed to the net availments of project loans of PHP 5.25 billion and third-currency upward revaluation of PHP 35.44 billion, albeit partially attenuated by the PHP 14.23-billion impact of peso appreciation against the US dollar,” the Treasury bureau said.

External debt is comprised of PHP 2.32 trillion in loans and PHP 2.62 trillion in government securities. The latter consisted of PHP 2.22 trillion in US dollar bonds, PHP 218.49 billion in euro bonds, PHP 67.32 billion in Japanese yen bonds, PHP 58.49 billion in Islamic certificates, and PHP 54.77 billion in peso global bonds.

As of end-July, the NG’s guaranteed obligations edged up by 0.3% to PHP 344.79 billion from PHP 343.65 billion as of end-June.

“The rise in NG guarantees was mainly due to the PHP 3.57-billion effect of third-currency adjustments against the US dollar which outweighed the PHP 1.96-billion reduction from domestic and external net repayments as well as the PHP 0.47-billion downward revaluation brought about by peso appreciation,” the BTr said.

Year on year, guaranteed obligations declined by 5.1% from PHP 363.39 billion.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said NG debt levels will continue to increase but at a slower pace.

“Now that we are not in an emergency situation… we expect the debt levels to still rise but at a slower pace… especially that we are on the cusp of the start of monetary easing cycle of the US Federal Reserve, while the Bangko Sentral ng Pilipinas (BSP) has already began its cuts,” he said in a Viber message.

Last month, the Monetary Board reduced interest rates by 25 basis points (bps), bringing the benchmark rate to 6.25%. The central bank is also likely to cut rates by another 25 bps in the fourth quarter, BSP Governor Eli M. Remolona, Jr. has said.

The US Federal Reserve is also widely expected to begin cutting rates this month.

Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said the government must minimize “unnecessary expenses” to manage debt.

In a Viber message, he said the government should also fast-track infrastructure spending to attract investments.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government’s intensified tax collections and other fiscal reform measures would also help narrow the NG’s budget deficit and slow the rise in debt.

“New and higher taxes could be a final option if inflation eases further in an effort to bring down the NG debt-to-GDP ratio to below the international threshold of 60%, alongside faster GDP growth,” he said via Viber.

The NG’s debt-to-GDP ratio, or the ratio between how much a country owes and how much its economy produces to pay off debt, stood at 60.9% as of end-June.

This is still above the 60% threshold deemed manageable by multilateral lenders for developing economies. The government expects the debt-to-GDP ratio to end the year at 60.6%.

The government’s borrowing program for this year is set at PHP 2.57 trillion, with PHP 1.92 trillion from domestic sources and PHP 646.08 billion from foreign sources. – Beatriz Marie D. Cruz, Reporter

Lower interest rates will help drive the entry of more foreign direct and portfolio investments into the Philippines, analysts said.

“The outlook for foreign direct investment (FDI) and foreign portfolio investment (FPI) in the Philippines appears promising, with current trends suggesting the country could meet or potentially exceed the Bangko Sentral ng Pilipinas’ (BSP) targets,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The BSP expects to record FDI net inflows of USD 9.5 billion this year. For foreign portfolio investments, it forecasts USD 3.1 billion in net inflows by yearend.

“The BSP’s forecast for the year sounds reasonable, as it wouldn’t be too far a stretch, with that sort of level of annual FDI coming into the Philippines almost consistently over this period, barring the coronavirus-hit year in 2020,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in an e-mail.

In the January-to-May period, FDI net inflows jumped by 15.8% year on year to USD 4.024 billion, data from the BSP showed.

Meanwhile, short-term foreign investments yielded a net inflow of USD 1.46 billion in the January-July period, surging from the USD 157.3-million net inflows in the same period a year ago.

FDIs are considered long-term investments, while portfolio investments or “hot money” are seen as more fickle due to the ease by which these funds enter and leave the economy.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said the BSP’s investment targets are doable amid easing interest rates.

“Offering attractive rates will be the key. All around will be declining key rates, thus, offering sensible investments now will lock in gains for prospective investors. I would like to believe that there is time,” he added.

Mr. Roces said the further reduction in policy rates this year and next year “should stimulate investment activity, particularly for FDI, by making borrowing more attractive.”

At its August meeting, the Monetary Board cut rates for the first time in nearly four years or since November 2020. It reduced borrowing costs by 25 basis points (bps), bringing the benchmark rate to 6.25% from the previous over 17-year high of 6.5%.

The central bank could also deliver another 25-bp rate hike in the fourth quarter, BSP Governor Eli M. Remolona, Jr. said earlier.

The US Federal Reserve is expected to start its easing cycle later this month, which also bodes well for investor sentiment, analysts said.

“The biggest catalyst for FDI and FPI into the country is the expected series of Fed rate cuts that could be matched locally, thereby leading to improvements in global investments, trade, and other economic activities,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Apart from reduced borrowing costs, analysts said that the country’s strong macroeconomic indicators will help attract more investments.

“Key drivers for achieving these targets include sustained economic fundamentals, political stability, an improved regulatory environment, ongoing infrastructure developments, and the country’s competitive advantages in sectors like BPO (business process outsourcing) and manufacturing,” Mr. Roces said.

Mr. Asuncion said investors are likely to be attracted to the Philippines because of its upbeat economic growth.

“If foreign investors see real opportunity in investing in the Philippines, I do not think it will be a huge problem getting these investors on board,” he added.

The Philippine economy grew by 6.3% in the second quarter, marking the fastest growth in five quarters or since the 6.4% in the first quarter of 2023.

On the other hand, Leonardo A. Lanzona, Jr., an economics professor at the Ateneo de Manila University, said that lower borrowing costs may favor short-term investments over long-term ones.

“The low interest rates of BSP can stimulate economic activity. However, this can only boost short-term investments as borrowing becomes cheaper,” he said in an e-mail.

“It can depress long-term investments if the returns on longer-term projects are deemed insufficient relative to the risks.”

Mr. Chanco also cited risks to this investment outlook, noting the country’s “policy stasis.”

“The Philippines’ nearest neighbors and biggest competitors remain quite aggressive in their pursuit of more open trade borders and a better infrastructure environment for businesses, something that the Philippines is still struggling with,” he added.

The government’s policies may also benefit short-term investments, Mr. Lanzona said.

“Also, the government implements policies or incentives that encourage immediate spending or investment, such as tax breaks or stimulus checks. These policies can boost short-term investments but may not have the same impact on long-term projects that require sustained funding and are subject to continuous risks,” he said.

Mr. Ricafort also noted that the investment targets remain achievable, barring any further geopolitical risks.

“However, global economic conditions and exchange rate stability will also play crucial roles. While the current trajectory remains positive, risks such as geopolitical uncertainties and domestic policy changes will have an impact on these projections,” Mr. Roces said.

Mr. Ricafort also noted that the country’s improving credit rating outlook will also support foreign investment growth by boosting the confidence of international investors and creditors.

Japan-based Rating and Investment Information, Inc. last month upgraded the Philippines’ investment grade rating to “A-.”

The country also secured an “A-” rating from the Japan Credit Rating Agency but has yet to secure an “A” rating from the “big three” credit raters.

The Philippines currently holds a “Baa2” rating from Moody’s Ratings, “BBB” from Fitch Ratings, and “BBB+” from S&P Global Ratings.

The government is targeting to achieve an “A” rating by the end of the Marcos administration. – Luisa Maria Jacinta C. Jocson, Reporter

 

Factory activity in the Philippines expanded at a steady pace in August amid a “modest” improvement in operating conditions, with firms ramping up production, S&P Global said.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 51.2 in August, the same reading in July.

A PMI reading above 50 denotes improved operating conditions from the previous month.

“The Filipino manufacturing sector showed sustained and modest gains midway through the third quarter. Growth in output and new orders accelerated on the month, thereby highlighting improving demand trends,” S&P Global Market Intelligence economist Maryam Baluch said in a report.

“However, employment fell, and buying activity cooled, suggesting that manufacturers remain cautious about growth prospects,” she added.

Based on the latest PMI data, the Philippines had the second-highest reading out of five Southeast Asian countries, only behind Thailand (52). Meanwhile, Malaysia (49.7), Indonesia (48.9), and Myanmar (43.4) all showed contractions.

As of publishing time, there were no data on Vietnam and Singapore.

The headline PMI measures manufacturing conditions through the weighted average of five indices — new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

For the Philippines, S&P Global data showed that overall growth in new orders was the strongest in three months.

“However, demand from foreign customers faltered in August, as new exports sales fell for the first time since the start of the year. The data thus suggesting that demand was domestically driven,” it said.

The pace of production accelerated in August from the four-month low in July.

S&P Global noted growth in business requirements prompted manufacturers to increase purchasing activity in August, although the rate of increase was the slowest in five months.

“The slowdown in buying activity was reflected in a softer buildup of pre-production inventories held at manufacturers. The upturn was slight and the weakest in the current six-month period of accumulation,” it said.

Post-production inventories dropped for the first time since February after five straight months of stock building, it added.

Philippine manufacturers were hesitant to hire new staff in August, reversing the uptick seen in July.

“Contractions have now been noted in three of the past four survey periods. Moreover, the tenacity of goods producers to complete workloads efficiently, despite a contraction in workforce numbers, highlighted sufficient capacity,” S&P Global said.

Inflationary pressures eased in August as input costs rose moderately, it said.

“Selling prices for goods were raised at a softer and only a slight pace, indicating that firms are in part absorbing costs in a bid to boost sales and remain competitive,” it said.

There were still delays in input from suppliers, with vendor performance deteriorating for the fourth month in a row. However, S&P Global said the recent delays were the “least pronounced” since May.

“The (manufacturing) slowdown could partly be attributed to the ghost month, inclement weather that led to some work/production disruptions,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Looking ahead, S&P Global said that Philippine manufacturers expect output to expand further in the next 12 months, with its PMI reading to likely stay well above the 50 mark.

However, the latest data showed a dip in the firms’ level of confidence.

“Confidence levels also waned in the latest survey period and hit a four-month low, further confirming that expectations surrounding the production outlook have softened,” Ms. Baluch said.

The central bank’s recent rate cut and expected easing in the fourth quarter are seen stimulating factory activity in the coming months, Security Bank Corp. Chief Economist Robert Dan J. Roces said.

“The Aug. 15 rate cut and the anticipated 25-basis-point (bp) reduction in the fourth quarter could positively impact purchasing activity in the coming months, as it may encourage businesses to invest in their operations, leading to increased demand for materials and supplies,” he said in a Viber message.

The Monetary Board cut rates by 25 bps at its August meeting, bringing the benchmark rate to 6.25% from the over 17-year high of 6.5%.

Bangko Sentral ng Pilipinas Governor Eli M. Remolona, Jr. has also said the central bank can cut rates by another 25 bps before yearend.

Lower borrowing costs may also boost consumer spending, increasing the demand for manufactured goods, Mr. Roces added.

Mr. Ricafort said that further policy easing by the Philippine and US central banks may lead to cheaper credit for manufacturers, and bolster trade and investment activity.

Markets are widely expecting the US Federal Reserve to begin cutting rates this month. – Beatriz Marie D. Cruz, Reporter