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The Philippines’ external debt service burden dropped to USD 6.72 billion in the first half of the year as less foreign loans were due for repayment, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Debt service on external borrowings went down by 6.2% to USD 6.72 billion as of June from USD 7.164 billion in the same period in 2024.

Broken down, principal payments declined by 13.1% year on year to USD 2.77 billion in the January-to-June period from USD 3.189 billion.

Meanwhile, interest payments dipped by 0.7% in the first six months to USD 3.949 billion as of end-June from USD 3.976 billion last year.

“The decline in the Philippines’ external debt service burden in the first half mainly reflects lower principal repayments as fewer foreign obligations matured, alongside liability management efforts and a borrowing mix favoring domestic sources,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

Mr. Asuncion also noted the decline in debt servicing shows the country’s foreign debts are manageable, giving the government more fiscal space and easing the strain on its dollar reserves.

Meanwhile, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said external debt servicing declined as foreign loans account for a smaller share in the National Government’s total borrowing mix.

“This could be attributed to the lower share of foreign borrowings in the total National Government borrowing mix in recent years to better manage (foreign exchange) risks entailed in foreign borrowings,” he said in a Viber message.

The debt service burden represents principal and interest payments after rescheduling, according to the BSP.

This includes principal and interest payments on fixed medium- and long-term credits, including International Monetary Fund credits, loans covered by the Paris Club and commercial bank rescheduling, and New Money Facilities. It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, the debt service data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.

In the first half, the debt service burden as a share of gross domestic product (GDP) fell to 2.8% from 3.2% in the comparable year-ago period.

Meanwhile, the country’s outstanding external debt reached USD 148.873 billion as of June, a 14.4% jump from USD 130.182 a year ago.

Of the total, USD 94.801 billion is public sector debt, while USD 54.072 billion is private sector debt.

This brought the external debt as a percentage of GDP to 31.2% in the first six months from 28.9% in the same period last year.

Mr. Asuncion said the government may see a slight uptick in its foreign debt service bill in the coming months as more foreign obligations will be due for repayment.

“For the second half, we expect a modest pickup as more amortizations fall due, but the debt service ratio should stay within a comfortable range given ample reserves and a still-favorable global rate environment,” he said.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

The central bank gathers data on external debt through reports submitted by borrowers, banks, and major foreign creditors. — Katherine K. Chan

 

The Philippines slipped one spot in a global index on economic freedom, despite improvements in some areas, according to the Canada-based think tank Fraser Institute.

The country ranked 62^nd out of 165 economies in conservative think tank’s Economic Freedom of the World report, which uses 2023 data. In the previous year’s index, the Philippines ranked 61^st place.

This was the Philippines’ lowest placement in the index in two years, or since it ranked 68^th in 2021.

Despite the lower ranking, the country’s score inched up to 7.05 out of 10 in 2023 from 7.01 in 2022.

Among Asia-Pacific jurisdictions, the Philippines lagged behind Hong Kong (8.55), Singapore (8.50), New Zealand (8.33), Australia (8.03), Taiwan (8.03), Japan (7.83), Malaysia (7.56), South Korea (7.53), Thailand (7.10), and Brunei Darussalam (7.09).

However, the Philippines was ahead of Indonesia (6.96), Mongolia (6.83), Cambodia (6.79), Vietnam (6.21), China (6.13), Papua New Guinea (6.09), Fiji (6.08), Timor-Leste (5.97), Laos (5.65), and Myanmar (4.46).

The index measures the degree to which citizens are allowed to make their own economic choices through five areas: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation.

The Philippines had its highest score in the sound money category with 9.01, ranking 34^th out of the 165 countries, slightly lower than its previous score of 9.04.

The country’s score in size of government went up to 7.88 from 7.77 previously. Its current ranking was at 21^st place from 26^th previously.

Manila’s score in regulation also went up to 6.65 (64^th) from 6.55 (67^th) previously.

However, the country yet again performed worst in the legal system and property rights area with a score of 4.57, ranking 109^th. Its score slightly improved from 4.55 previously.

Meanwhile, its score in freedom to trade internationally stood at 7.15, ranking 86^th from 87^th previously.

Foundation for Economic Freedom President Calixto V. Chikiamco said that the Philippines continues to underperform in the areas of legal system and property rights and trade freedom.

“Particularly in agricultural trade. We are still protecting our agricultural sector with quotas, high tariffs, and other forms of restrictions,” he said in a Viber message.

Meanwhile, Mr. Chikiamco said that the previous administration’s unilateral cancellation of the contracts with the private water concessionaires and refusal to abide by the decision of arbitration proceedings have impacted the country’s overall ranking.

“That and other instances where contracts aren’t honored cause low ratings of the country [in legal system and property rights],” he added.

However, Mr. Chikiamco said that the slight dip in the country’s ranking may also be attributed to improvements in other countries.

“The Philippines can fare better by dismantling agricultural protectionism, reforming an inefficient and corrupt judicial system, removing the Filipino First and Filipino Only provisions in the Constitution, and forging more free trade agreements with more economies,” he added.

Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said that the results of the index suggest that the Philippines is making progress, but “other economies are reforming faster and more comprehensively.”

“We continue to lag in critical areas like rule of law, regulatory quality, judicial independence, and most especially corruption control, which weigh down its overall ranking,” he said in a Viber message.

To improve, he said that there is a need for the Philippines to strengthen its institutional frameworks.

“It must also enforce property rights, simplify regulations, and promote a more transparent and predictable policy environment to boost investor confidence and economic dynamism,” Mr. Rivera said.

According to the Fraser Institute, economic freedom has been declining since the pandemic.

“Global economic freedom peaked in 2019 but has declined in each of the four years since then, which hasn’t happened since we began measuring economic freedom more than 25 years ago,” Matthew Mitchell, a senior fellow at the Fraser Institute, said in the report.

Hong Kong topped the latest index, followed by Singapore, New Zealand, Switzerland, the United States, Ireland, Australia and Taiwan (tied for 7^th), Denmark, and the Netherlands.

However, the Fraser Institute expects US President Donald J. Trump’s tariffs to further depress US economic freedom.

“When countries move to restrict trade freedom, other areas of economic freedom, such as size of government, sound money, and regulatory freedom, often soon follow,” it added.

Meanwhile, the lowest scoring economies on the index were Venezuela, Zimbabwe, Sudan, Algeria, Iran, Myanmar, Argentina, Syria, Libya, and Chad. — Justine Irish D. Tabile, Reporter

The national government’s (NG) gross borrowings nearly tripled in August amid sharp rise in domestic and foreign borrowings, the Bureau of the Treasury (BTr) said.

The latest data from the Treasury showed that total gross borrowings jumped by 192% to PHP 508.53 billion in August from PHP 174.03 billion in the same month a year ago.

Month on month, gross borrowings surged by 206% from PHP 166.11 billion in July.

Domestic borrowings, which made up 97.97% of the total, rose by 198% to PHP 498.21 billion in August from PHP 167.05 billion in the same month last year.

This was composed of PHP 425.61 billion in retail Treasury bonds (RTB), PHP 60 billion in fixed-rate Treasury bonds (T-bonds), and PHP 12.6 billion in Treasury bills (T-bills).

External borrowings, which mainly consisted of project loans, climbed by 47.57% to PHP 10.31 billion in August from PHP 6.99 billion in the previous year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said elevated gross borrowings in August were likely driven by the latest RTB issuance as the government needed additional funds to plug the budget deficit.

The government raised PHP 507.16 billion from the issuance of RTBs in August, exceeding the PHP 30-billion target.

“The large increase in borrowings can be attributed to the large issuance of domestic debt securities by the government which successfully met the demand for these securities amid investors seeking safe returns,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said in a Viber message. 

End-August borrowing

Meanwhile, NG’s gross borrowings stood at PHP 2.27 trillion in the January-to-August period, up 17.22% from PHP 1.93 trillion a year ago.

The total borrowings accounted for 87.16% of the revised PHP 2.6-trillion financing program for 2025.

Domestic debt accounted for the bulk or 81.19% of total gross borrowings in the first eight months.

Gross domestic debt increased by 11.46% to PHP 1.84 trillion as of end-August from PHP 1.65 trillion in the same period last year. This made up 87.12% of the PHP 2.11-trillion program this year.

Broken down, domestic debt was composed of PHP 941.84 billion in fixed-rate Treasury bonds, PHP 425.61 billion in RTBs, PHP 300 fixed-rate Treasury notes, and PHP 172.45 in T-bills.

As of end-August, gross external debt rose by 50.89% to PHP 426.23 billion from PHP 282.46 billion a year ago. The total foreign borrowings in the January-to-August period accounted for 87.31% of the PHP 488.17-billion program this year.

Broken down, foreign debt was made up of PHP 191.97 billion in global bonds, PHP 171.31 billion in program loans and PHP 62.96 billion in project loans.

External borrowings in the end-August period were also padded by the global bond issuance that raised USD 3.3 billion or PHP 192 billion in late January but settled in February.

Mr. Ricafort said the government would likely exceed its borrowing program with the ballooning budget deficit.

“There is a chance if the budget deficit widened for the rest of 2025 and needed to be funded by additional NG borrowings,” he said.

Separate data from the BTr showed that the fiscal gap swelled by 56.38% to PHP 84.8 billion in August, which brought the eight-month deficit to PHP 869.2 billion.

“The government’s recalibration of debt to increase the share of domestic debt over foreign debt sources is reflective in the composition of new borrowings this August. We may see the same trend in the coming months,” Mr. Erece said.

The government favors domestic sources of debt as it aims to reduce foreign currency risk.

The BTr earlier said it is looking to borrow PHP 437 billion from the domestic market in the fourth quarter, comprised of PHP 262 billion in T-bills and PHP 75 billion in T-bonds.

For 2026, the financing program is set at PHP 2.68 trillion, of which PHP 2.05 trillion will be from local lenders and PHP 627.1 billion from foreign sources.

Higher debt

Meanwhile, the share of Philippines government debt to gross domestic product (GDP) edged up to 57.8% in the second quarter of 2025 from 56.7% a year earlier, according to the Institute of International Finance quarterly debt monitor.

Household debt as a share of GDP slid to 11.3% in the second quarter this year from 12.1% in the same period a year ago.

The domestic financial sector’s debt-to-GDP ratio eased to 7.2% in the second quarter from 7.6% in the same quarter in 2024.

On the other hand, nonfinancial corporates’ debt-to-GDP ratio also eased to 25.7% in the second quarter this year from 26.8% a year ago. — A.R.A.Inosante

Amari Neil B. Dimafeliz,18, first turned to artificial intelligence (AI) in 2023 when his small 3D-printing business started growing faster than he could manage.

Running a youth-led enterprise with limited manpower, he struggled to find employees willing to work for someone still in college. “My age has been an obstacle to hiring people, so I turned to AI because it’s not selective in who it’s performing for,” he said by telephone.

Instead of hiring extra staff, Mr. Dimafeliz invested in a PHP 100,000 printer with AI features that automatically checks the quality of his customized products, which include keychains, figurines, thesis prototypes, coasters, ballpens and pencil cases.

“On the operational side, our printers use artificial intelligence for precautionary measures when there are failures in printing,” he said.

AI also helps market his products. He uses it to generate captions and images for his small business’ social media pages, a task that once ate up hours of his time. For a full-time mechanical engineering student at Mapua University, AI has become a crucial tool for balancing academics with entrepreneurship.

Stories like Mr. Dimafeliz’s illustrate how AI could reshape the way micro, small and medium enterprises (MSME) operate.

MSMEs account for about 99% of all businesses in the Philippines, yet adoption of advanced digital tools remains low. As of 2021, only 14.9% of firms had integrated AI, according to the government think tank Philippine Institute for Development Studies (PIDS).

AI has the potential to transform these businesses, said Ian Jester M. De Vera, head of the research division at the University of the Philippines Institute for Small-Scale Industries (UP ISSI). “Some of the tasks of MSMEs are just repetitive, so if they’re going to leverage AI, they will do away with these tasks,” he told BusinessWorld by telephone.

AI can also help smaller firms scale operations and compete with larger corporations, said John Paolo R. Rivera, a PIDS senior research fellow. “By using AI, MSMEs can better compete with larger firms and participate in digital trade,” he said in a Viber message.

Among its practical benefits: AI can forecast demand, analyze customer behavior, and reduce overstock or shortages. It can personalize marketing strategies and improve logistics efficiency.

Beyond operations, AI can handle invoicing, payroll and appointment scheduling, reducing costs and human error. Virtual assistants and chatbots can also take over routine customer service inquiries, saving time for owners and staff.

AI may even help protect businesses from rising cyberthreats. MSMEs are often prime targets for ransomware and phishing attacks, noted Bambi Escalante, country manager at Fortinet Philippines.

Steep challenges

“Most small and medium businesses don’t have dedicated IT security teams, making it difficult to keep up with evolving threats,” she told BusinessWorld in an e-mailed reply to questions. “This is where AI becomes a game-changer — it automates routine security tasks and helps businesses stay ahead of cyber risks without needing extensive resources.”

A joint study by Google and Access Partnership estimates that if widely adopted, AI-powered products and solutions could unlock as much as P2.8 trillion in economic benefits for Philippine businesses.

Despite its promise, AI adoption among MSMEs faces steep challenges.

For one, resources remain tight. “Let’s face it, MSMEs have limited resources, and some of them are even cash-strapped,” Mr. De Vera said. “If AI would just add to their costs, maybe they would think twice about adopting it.”

Generational gaps also play a role. Many first-generation business founders remain hesitant to use AI themselves. “When I talk about AI, of course they’re amazed, but they instead want their children to learn how to use it, because they don’t know how to use it,” said Reynaldo C. Lugtu, Jr., president and chief executive officer (CEO) at consulting firm Hungry Workhorse.

Digital infrastructure is another major hurdle. Reliable internet access is still uneven across the country. “The foremost barrier is infrastructure, because it’s still a problem, especially in a developing country like the Philippines, to have a reliable internet connection,” Mr. De Vera said.

The Philippines ranked 56^th out of 77 countries in Huawei Technologies’ 2024 Global Digitalization Index, classifying it as a “starter” in digital transformation.

MSMEs also often lack the data needed to fuel AI systems. “AI requires large datasets to function effectively, but many MSMEs struggle with limited or unstructured data,” Mr. Rivera said. This data gap also affects their access to credit, marketing insights and long-term planning.

To address these challenges, organizations are working to strengthen MSMEs’ digital skills. The UP ISSI offers training and mentorship programs, guiding entrepreneurs on responsible AI use, strategy development and data-driven decision making. It has also rolled out a business course covering AI systems, analysis tools and ethical frameworks.

Private firms are innovating as well. Peddlr, a smart point-of-sale (POS) app for small businesses, plans to integrate AI into its analytics and reporting features.

“It is on our product roadmap to incorporate this technology with our POS app, starting with the reports and analytics module,” Peddlr founder and CEO Nel Laygo said in an e-mailed reply to questions.

Mr. Laygo added that MSMEs should begin embedding AI proficiency into their workforce development. “They should start incorporating AI proficiency into internal training to upskill staff and include this as a requirement when hiring new talent, alongside proficiency in Microsoft Word, PowerPoint and Excel,” he said.

Experts say both the government and private sector need to step in by subsidizing AI tools, improving internet infrastructure, and promoting digital literacy. “Both sectors can also invest in digital literacy and training, so this will upskill MSME employees through courses and workshops that will improve their competence in using AI,” Mr. De Vera said.

While MSMEs worldwide are beginning to integrate AI into their operations, many owners remain cautious about overreliance.

Mr. Dimafeliz, whose 3D-printing business continues to grow alongside his studies, sees AI as a helpful partner but not a substitute for creativity.

“AI is not perfect,” he said. “We still have to apply our personal touch to ensure originality. We still need the intervention of human beings.” — Beatriz Marie D. Cruz, Reporter

The Bangko Sentral ng Pilipinas (BSP) could lower borrowing costs as early as October if the economy shows signs of losing momentum, BSP Governor Eli M. Remolona, Jr. said, suggesting that policymakers are not ruling out further easing even after cutting rates for three straight meetings.

“If we see [economic] output slowing down because of the lack of demand, then we would step in, easing policy rates [to] strengthen demand,” he said in an exclusive interview on Thought Leaders with Cathy Yang on One News on Thursday.

But the BSP chief said monetary policy would be ineffective in addressing supply-driven slowdowns. “If it’s a supply thing, there’s little we can do. So, it has to come from a demand side for us to act decisively,” he added.

Last month, the Philippine central bank lowered its benchmark interest rate by 25 basis points (bps) to 5%, marking its third consecutive cut. That brought total easing to 150 bps since August 2024.

Mr. Remolona has repeatedly described the policy setting as a “Goldilocks rate,” balancing inflation and growth.

“We’re in the Goldilocks zone, I would say,” he said. “So, if the forecast stays… we’re going to stay where we are in terms of the policy rate. There may be small adjustments — a pause or an ease — but more or less, we’re going to be at the same range.”

The governor said two quarter-point reductions in October and December are “possible but not likely.” While not ruling them out, he said the central bank is inclined to hold steady if forecasts for both inflation and growth remain intact.

Larger cuts are improbable. “A 50-bp cut is a big shot,” Mr. Remolona said, stressing that easing would likely continue in smaller, incremental steps. He added that only a sharper slowdown in economic activity and a rise in unemployment would prompt more aggressive action.

Philippine inflation averaged 1.7% in the first eight months, below the BSP’s 2-4% target, after quickening slightly to 1.5% in August.

This was the sixth straight month that consumer price growth undershot the target. The economy expanded by 5.5% in the second quarter from a year earlier, quicker than 5.4% in the previous quarter.

The BSP projects full-year growth to settle at the lower end of the government’s 5.5-6.5% goal, with inflation ending the year at 1.7%.

The Monetary Board has two remaining policy meetings this year, on Oct. 9 and Dec. 11. Mr. Remolona said the central bank typically makes decisions every two months as new data come in, but he did not rule out off-cycle action.

“Of course, if it’s really bad, we can move the policy rate even outside our usual schedule of policy meetings, but that’s highly unlikely,” he said.

Beyond the immediate growth-inflation trade-off, Mr. Remolona said policy adjustments also help banks operate more efficiently.

“For me, it’s no longer a monetary policy thing,” he said. “It’s more of a structural thing to help banks be more efficient in terms of lending, pricing their deposits.”

The central bank chief said inflation risks are generally low. The BSP expects price increases to average 3.3% next year and 3.4% in 2027, both within target.

“If it’s not so good data, then of course we’ll ease,” he said. “The risks of higher inflation which would make us tighten, the way we see it now, those risks are small. So, I think we’re comfortable for now.” — Katherine K. Chan

State infrastructure spending declined by 25% in July, amid sluggish disbursements by the Department of Public Works and Highways (DPWH), the Budget department said.

At the same time, Budget Secretary Amenah F. Pangandaman said infrastructure disbursements may remain subdued in the coming months amid the ongoing probe into anomalous flood control projects.

In its latest disbursement report on Thursday, the Department of Budget and Management (DBM) said expenditures on infrastructure and other capital outlays fell by 25.3% to P93.3 billion in July from P124.9 billion in the same month last year.

Month on month, it dropped by 37.3% from P123.8 billion spent on infrastructure in June. 

This marked a reversal of the 6.5% annual increase seen in June after the election ban on public works disbursements was lifted in early May.

The DBM attributed the year-on-year decline in infrastructure spending to weak disbursements by the DPWH, which is currently embroiled in a controversy over anomalous flood control projects.

The Budget department noted the slow DPWH disbursements were due to project implementation schedules, including the timing and phasing of infrastructure activities, as well as delays in procurement, incomplete submission of progress billings and required documents by contractors.

Spending in July was also affected by contractors’ compliance with the new tax clearance requirement of the Bureau of Internal Revenue (BIR) for the release of final payments.

The BIR earlier said the failure of contractors to present their tax clearance will result in the suspension of contract settlements and the imposition of a tax line over the contract amount in favor of the government.

The updated clearance guarantees that every contractor has no outstanding tax liabilities.

“Disbursements for the Revised Armed Forces of the Philippines Modernization Program (RAFPMP) of the DND (Department of Defense) were also lower in July 2025 attributed to the timing of releases, as big-ticket items were scheduled in August,” the DBM said.

At the same time, the DBM said lower spending was partly offset by higher disbursements from the Department of Transportation, driven by local counterpart funding for foreign-assisted projects and the settlement of outstanding payables.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government should exercise caution to prevent anomalies and corruption allegations.

“However, other infrastructure projects in good order will continue,” he said in a Viber message on Thursday.

For the January-to-July period, overall infrastructure and capital outlays disbursements slipped by 3.2% to P713.5 billion from P736.7 billion in the same period last year.

The decline was driven by combined factors, including the second-quarter election-related ban and timing of disbursements for the defense modernization program.

As of end-July, the DBM released P4.9 billion to the DPWH for nationwide classroom repairs, alongside P3.5 billion earmarked for the restoration of Gabaldon and other heritage school and the implementation of the Last Mile Schools Program.

‘TEMPORARY SLOWDOWN’
Meanwhile, Ms. Pangandaman said infrastructure spending this year was dented by the election ban, and now the ongoing investigation on flood control projects.

The Budget department warned of a temporary slowdown in infrastructure spending as the DPWH conducts tighter due diligence of projects.

“(This) following rigorous due diligence being undertaken by the DPWH to evaluate and validate status of completed projects, and employ measures to enforce stricter verification of progress billings and other payment claims,” the DBM said.

Earlier this month, the DPWH suspended the bidding of all locally funded projects for two weeks, to help the agency implement safeguards against so-called “ghost” projects.

“The DPWH has also since lifted the suspension of bidding and procurement activities for local projects to ensure continuity and timely implementation of the infrastructure program while implementing safeguards to prevent corruption and ensure compliance with existing laws, rules, and regulations,” the Budget department said.

“Infrastructure spending will hopefully normalize and catch up towards the latter part of the year.”

However, Ms. Pangandaman said it’s too early to tell if the infrastructure slowdown will dent economic growth.

“We’re working with the DBCC (Development Budget Coordination Committee) to crunch the numbers. We’ll know more after the next (DBCC) meeting,” she said.

Analysts said they expect spending to further cool until 2026 amid a widening probe on infrastructure projects.

“We may see even slower infra spending in the coming months amid scrutiny of the DPWH and the corruption scandal,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said in a Viber message.

Ateneo Center for Economic Research and Development Director Ser Percival K. Peña-Reyes said the flood control scandal is a “very hot issue” that’s likely to cool infrastructure spending through yearend.

Mr. Ricafort also said slower infrastructure spending could also dampen government spending, which contributes less than a fifth to the country’s economic output.

“Risk is slowdown in infrastructure spending and overall economic growth. But would help narrow the budget deficit and curb growth in overall NG (National Government) debt,” he said. — Aubrey Rose A. Inosante, Reporter