Philippines’ external debt rises in Q1 2025 on higher borrowing

By Francis Allan L. Angelo

The Philippines’ net external liabilities increased by 5.4 percent in the first quarter of 2025, rising from PHP 3.5 trillion in the previous quarter to PHP 3.7 trillion, as the national government deepened its reliance on foreign loans and nonresident investment in government securities, according to data released by the Bangko Sentral ng Pilipinas (BSP).

This uptick was largely due to increased borrowings by the general government (GG) and a reversal in the external financial position of other depository corporations (ODCs), which moved from a net asset to a net liability stance.

The general government’s net debtor position expanded by 4.5 percent quarter-on-quarter, reaching PHP 10.4 trillion in Q1 2025 from PHP 9.9 trillion in Q4 2024, driven by higher debt securities held by nonresidents and additional foreign loans.

Nonresidents — entities and individuals based outside the Philippines — increased their holdings of government securities and extended more loans to the Philippine government, which accounted for 89.3 percent of its total outstanding loans.

Despite the growing obligations, 69.2 percent of the GG’s liabilities were denominated in domestic currency, shielding it somewhat from fluctuations in the Philippine peso.

“Government securities continued to comprise three-fourths of the GG’s total debt,” the BSP report stated, noting that GS holdings by nonresidents surged 32.8 percent year-on-year, while loans payable to them increased by 13.9 percent.

The country’s net external liability also rose 24.6 percent year-on-year from PHP 3 trillion in Q1 2024, reflecting the broader impact of sustained foreign borrowing.

Meanwhile, households (HHs) remained the largest net creditor sector of the economy, with their net financial asset position rising by 1.9 percent quarter-on-quarter to PHP 15 trillion.

This growth was supported by increased investments in equity and investment fund shares issued by other financial corporations (OFCs), although it was tempered by lower bank deposits, reduced currency holdings, and higher loan obligations.

Still, households remained highly solvent — their gross financial assets were nearly three times their total liabilities.

“The households’ net claims on the OFCs rose by 9.2 percent… due mainly to higher investments in OFC-issued equity and investment fund shares,” the BSP noted.

The non-financial corporations (NFCs) — firms primarily engaged in producing market goods and services — saw a marginal 0.3 percent quarter-on-quarter reduction in their net financial liabilities, improving from PHP 11.5 trillion to PHP 11.4 trillion.

This improvement was largely attributed to increased investments in OFC-issued equity shares and higher deposits with nonresidents.

However, on a year-on-year basis, the NFCs’ net debtor position worsened by 6.6 percent, rising from PHP 10.7 trillion due to higher loans from ODCs and nonresidents.

Other depository corporations, which include banks and quasi-banking institutions, maintained a stable net financial asset position at PHP 1.5 trillion, with a slight 0.5 percent dip from the previous quarter.

They became net external debtors during the period, reflecting increased foreign loan obligations, although these were partially offset by higher placements in reverse repurchase (RRP) transactions and greater holdings of central bank and foreign-issued securities.

The central bank (CB) recorded the most significant quarter-on-quarter improvement among sectors, with its net financial asset position rising 11 percent from PHP 1.3 trillion to PHP 1.5 trillion.

This was driven by lower obligations to ODCs and households, although partially offset by reduced claims on the general government.

Year-on-year, the CB’s net asset position improved by 42.4 percent, underpinned by valuation gains in gold reserves and increased deposits with nonresidents.

At the macro level, the Balance Sheet Approach (BSA) — used to assess systemic financial stability — showed that the domestic economy’s gross financial assets stood at PHP 96.1 trillion while total liabilities reached PHP 99.8 trillion in Q1 2025.

Loans accounted for 46.3 percent of external liabilities, followed by equity and investment fund shares at 29.6 percent.

Conversely, external assets were largely held as loans (35.8 percent) and debt securities (32.3 percent).

The government’s liabilities-to-GDP ratio also ticked up from 68.8 percent in Q4 2024 to 70.2 percent in Q1 2025, outpacing nominal GDP growth.

This figure is higher than the Department of Finance’s reported national government debt-to-GDP ratio of 62 percent, due to the BSA’s broader sector and instrument coverage.

As of Q1 2025, the central bank, households, ODCs, and OFCs remained net creditors, while the GG and NFCs held net debtor positions.

The BSA, developed by the International Monetary Fund, is a financial stability tool that maps sectoral balance sheet interlinkages — allowing policymakers to monitor risks such as asset-liability mismatches and cross-sector contagion.

In sum, while the Philippine economy continues to manage its external obligations, the rising reliance on foreign loans and securities underscores the importance of balancing financing needs with sustainable debt levels.