Philippine economy

[ANALYSIS] Debt is rising fast, but worry more about Duterte’s spending

JC Punongbayan

This is AI generated summarization, which may have errors. For context, always refer to the full article.

[ANALYSIS] Debt is rising fast, but worry more about Duterte’s spending

Illustration by Alejandro Edoria

'Borrowing per se is not bad, especially during emergencies: when your loved one is fighting for their life at the hospital, you’d borrow money from relatives or friends just to save their life'

In January 2021 the total public debt breached P10.3 trillion. On the face of it, that might seem alarming for a couple of reasons. 

First, it’s a record high and a whopping 34% higher than the total debt a year ago. By contrast, our economy’s total income shrank by 9.5% last year. It doesn’t bode well whenever one’s debt swells just as one’s income collapses.

Second, the country’s outstanding debt is more than half (54.5%) the country’s total income in the last quarter of 2020. That’s the highest debt-to-GDP ratio since the mid-2000s, and reportedly one of the highest in ASEAN today.

Third, more and more Filipinos are asking where the government’s new borrowings are being spent. Despite the steep rise of loans of late (especially foreign loans), huge quantities of vaccines and economic aid don’t seem to be forthcoming. Many people aren’t feeling the impact of the new debt.

In this piece I’d like to clarify a number of things about the ballooning public debt. My advice is: don’t worry too much about how large it is. Worry much more about how and where Duterte is spending the new funds.

Don’t fixate on the size of debt

We need to disabuse ourselves of some misconceptions about the public debt. 

First, the recent rise of public debt is driven not so much by external or foreign loans (on which media unfortunately tends to fixate) but by domestic loans. This chiefly consists of the government’s issuance of debt securities (think Treasury bonds and bills) in the domestic credit markets.

That’s plain to see in Figure 1. Of the country’s P10.3 trillion debt as of January 2021, 71% comprises domestic debt. 

A vast majority or 93% of domestic debt consists of debt securities, and the remaining 7% mainly consists of loans extended by the Bangko Sentral ng Pilipinas (BSP) to the Treasury. It may not seem obvious, but many Filipinos nowadays have excess funds they’re willing to lend to government. And the BSP can, with a few keyboard strokes, draw up hundreds of billions of pesos to support the Treasury.

Meanwhile, external debt only constitutes 29% of the total debt. Nearly half of it (44%) consists of foreign loans, including those from multilateral agencies like the World Bank or the Asian Development Bank. The majority (56%) consists of securities issued abroad.

Figure 1.

The predominance of domestic securities vis-à-vis external loans is also evident in Figure 2. In December 2020, total debt grew by 34%, and 21.4 percentage points were due to the rise of domestic securities; only 3.64 percentage points were due to the rise of foreign loans.

Figure 2.

When borrowing makes sense

As a proportion of GDP or total income, debt is rising as one might expect. (Figure 3).

Figure 3.

Even so, the debt-to-GDP ratio isn’t all that high compared to the rest of ASEAN. At 54.5% last year, that’s still lower than the projected debt ratios of Malaysia (67.6%), Lao PDR (70.9%), and Singapore (131.2%).

Besides, having a relatively low debt-to-GDP ratio is nothing to brag about if it means that our government is scrimping on much-needed economic relief.

Figure 4 shows that, on average, the deeper the pandemic recession the larger the fiscal response of ASEAN governments. But the Philippines tends to defy this trend: last year we suffered ASEAN’s worst economic contraction (9.5%) yet our fiscal response was a mere 3.4% of GDP. 

Simply put, the Duterte government’s fiscal response was disproportionately small next to the extent of the crisis.

Figure 4.

It’s hard to fathom the economic managers’ extreme aversion to massive economic relief.

First, as they themselves admit, interest rates are very low and it’s as good a time as any to borrow for economic relief. They also constantly boast about the country’s good credit ratings, which should allow easy access to loans from abroad. 

Second, and more important, borrowing per se is not bad, especially during emergencies: when your loved one is fighting for their life at the hospital, you’d borrow money from relatives or friends just to save their life.

Likewise, the Philippine economy is already in the ICU. Yet the Duterte government refuses to borrow and spend on much-needed treatments, even though the chances of survival and recovery are high. 

Third, economists worldwide have considerably changed their tune when it comes to public debt. 

At a time like this, when record numbers of people have lost their jobs and gone hungry, the last thing governments need to worry about would be their debt-to-GDP ratios (let alone their credit ratings). The advice of economists is, borrow aggressively if need be, debt ratios be damned. Just look at the titanic $1.9-trillion American Rescue Plan of US President Joe Biden.

Unfortunately, this economic paradigm shift seems to escape Duterte’s economic managers. Even as COVID-19 cases are resurging and quarantine restrictions have tightened again, they still stubbornly refuse to give aid to Filipinos.

They’d much rather reopen the economy, but that’s a stupid move — one that almost certainly means a protracted recovery. Already, a number of foreign institutions have flagged the Philippines’ dim economic prospects this year. Moody’s, a credit rating agency, said our economy is in a “worrisome state.”

Where is the money going?

Huge borrowings aren’t so bad these days. But by no means is that a license for government to spend prodigally. 

It’s easy enough to borrow money. But ultimately it’s the government budget which dictates which projects and programs will be spent on.

Lamentably, the 2021 budget reveals just how much government got its priorities wrong.

First and foremost, the Duterte government allocated too much money on infrastructure projects under Build, Build, Build, and not nearly enough on the pandemic response. (READ: In 2021 budget, Duterte funds dubious infra projects, not vaccines)

The vaccines, too, received too little allocations. They were only given assured funding of P2.5 billion, and the rest of the vaccine budget was placed under the Unprogrammed Fund, and will consequently be financed by loans. 

Reportedly, Duterte’s men have already signed a $500-million vaccine loan from the World Bank and a $400-million loan from the Asian Development Bank; $300 million more will come from the Asian Infrastructure Investment Bank. 

The vaccine loans so far, totaling P58.5 billion, will be paid directly to the vaccine manufacturers. But the biggest constraint now is the tight supply of vaccines worldwide and the Duterte government’s late action in securing supplies last year. (READ: Duterte’s vaccine program is peak incompetence

Lastly, the Duterte government is pouring money into things that aren’t remotely related to the pandemic. 

For instance, the 2021 budget poured P19.5 billion into the anti-insurgency fund under the NTF-ELCAC, which has been recently linked to red-tagging. That’s nearly twice the amount they want to spend on economic relief for businesses under the Guide bill.

At the same time, House Speaker Lord Allan Velasco is also pushing to add P54.6 billion to the pension fund of military and uniformed personnel. 

Is the pandemic over and no one has told us? 

All in all, be frustrated more with Duterte’s misguided budget, not with how it’s financed.

Rethinking debt

Filipinos are understandably wary of debt. Our nation was traumatized by the Marcos dictatorship’s extravagant borrowing binge, which led to a full-blown economic crisis in the mid-1980s and pulled down our standard of living for decades.

But the present circumstances are rather different. Millions of Filipinos urgently need and deserve aid, and government must find ways to give such aid regardless of the new borrowings that it might entail.

Problem is, there’s little to no indication that the poor, workers, or small businesses are partaking in Duterte’s already swelling debt. That’s a much larger cause for concern than seeing a debt figure of 10 trailed by 12 zeroes. –

JC Punongbayan is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (

Add a comment

Sort by

There are no comments yet. Add your comment to start the conversation.

Summarize this article with AI

How does this make you feel?

Download the Rappler App!
Boy, Person, Human


JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for He is also co-founder of and co-host of Usapang Econ Podcast.