Debt burden tests fiscal credibility

From AB Capital's The Opening Bell: Three Moves

Event

National government debt rose to P18.55 trillion in May, up 0.4% MoM and 9.6% YoY, driven mainly by P80.23 billion in net domestic securities issuance. Domestic borrowings now make up 67.4% of total debt, while peso appreciation helped contain external debt revaluation.

View

In our view, the debt level is manageable only if nominal gross domestic product (GDP) growth and fiscal execution recover. The concern is less the monthly increase and more the debt-to-GDP ratio, which reached 65.2% in 1Q, above the government's 60% to 63% target range.

Catalyst

Key sensitivities are GDP growth, primary deficit control, peso direction, and domestic yield levels. If growth stays near 4% and borrowing costs remain elevated, debt ratios could stay sticky. If infrastructure spending improves without leakage and inflation eases, fiscal credibility can stabilize.

Action

We think this reinforces caution on long-duration assets and rate-sensitive sectors until fiscal execution improves. Favor companies with strong cash flows, low refinancing needs, and pricing power. For banks, higher domestic issuance supports securities supply, but also keeps duration and mark-to-market (MTM) risks relevant.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.