Philippines' external liabilities increase by 5.8% in Q1 (First Quarter)

The Philippines' net external liabilities have risen significantly, reaching US$69.3 billion by the end of March 2025. This increase, primarily driven by external debt, has raised concerns about fiscal sustainability and external vulnerabilities, but the government maintains that ongoing economic growth and disciplined debt management will ensure the country's ability to service its obligations.

The primary cause of the increase in net external liabilities is the national government's borrowing, primarily through the issuance of global bonds and loans from foreign development institutions. In the first quarter of 2025, the government raised $5.06 billion from global bond issuances to fund infrastructure projects and other budgetary needs. This financial activity significantly pushed the external debt to $146.74 billion by March 2025, a 14% increase year-on-year and equivalent to 31.5% of GDP.

Local banks also contributed to the increase by accessing offshore markets for short-term financing to support trading operations and manage liquidity, adding $6.14 billion to external borrowings. Another factor is the widening trade deficit, driven by sharply rising imports against stagnant exports, which has exacerbated external liabilities.

The growing debt pile corresponds with persistent budget deficits, increasing the government's need to borrow more to finance spending. Despite this, authorities maintain that debt levels remain manageable with a disciplined strategy, aiming to reduce the debt-to-GDP ratio below 60% by 2028. The Philippine government asserts that ongoing economic growth outpaces the increase in obligations, sustaining repayment capacity.

The combination of a rising trade deficit and increasing external debt raises concerns about external sector vulnerabilities and pressures on gross international reserves, although current financial buffers remain robust. The country's net external liability position expanded by 17.2% against US$59.1 billion by the end of March last year.

Much of the foreign investment in external liabilities comes from global bond investors and foreign development institutions extending loans to the government. Foreign investments also flow into the banking sector as local banks tap offshore markets for financing, reflecting confidence in the financial system’s international linkages. Despite rising debt, there is strong demand for Philippine government securities, including benchmark bonds, from both domestic and foreign investors, supporting the government's funding needs.

The bulk of foreign investments in the country's financial assets were placed in "other sectors," followed by debt instruments like bonds, and equity securities. Reserve assets account for the largest portion of foreign investments in the Philippines. Special Drawing Rights (SDRs), or the foreign exchange reserve assets maintained by the International Monetary Fund that the BSP holds, represent a small percentage of the foreign investments.

The increase in net external liabilities was driven by robust foreign investments, with foreign investments outpacing the country's own investments abroad. Equity capital and debt securities are the third and fourth largest components of foreign investments in the Philippines, respectively.

In conclusion, the rise in the Philippines' net external liabilities is primarily due to government and banking sector borrowings aimed at supporting infrastructure and budgetary requirements amid a widening trade deficit. While this raises concerns about fiscal and external vulnerabilities, disciplined debt management and steady economic growth underpin the country's ability to service its obligations. Foreign investments are concentrated mainly in sovereign bond markets and banking sector financing, with continued investor demand for government securities underscoring market confidence.

The government's borrowing through global bond issuances and loans from foreign development institutions, along with local banks' accessing offshore markets for financing, have significantly contributed to the rise in the Philippines' net external liabilities.
In Manila, the combination of a growing debt pile due to government spending and a widening trade deficit has resulted in an increased need for funding, with much of the foreign investment in external liabilities coming from global bond investors and foreign development institutions.
Despite the higher net external liabilities, the Philippine government maintains that ongoing economic growth outpaces the increase in obligations and that disciplined debt management will ensure the country remains capable of servicing its business-related financial obligations.