BSP: Philippines needs to rebuild fiscal buffers

After pandemic, infrastructure spending

MANILA, Philippines — The Philippines needs to bring down its debt after pandemic spending and higher infrastructure outlays pushed government borrowings back to around 60 percent of the economy, according to a new book published by the Bangko Sentral ng Pilipinas.

In the book titled “Risk and Resilience in the Philippine Financial System,” BSP-backed researchers said the country has become more resilient to shocks over the past four decades, supported by stronger banks, higher foreign exchange buffers and better debt management.

However, the book warned that part of the fiscal space built before the pandemic has already been used, leaving the government with less room to respond to future crises.

“As a result of fiscal stimulus to offset the pandemic’s impact, along with a sharp increase in infrastructure spending, a large portion of the fiscal buffer has since been used,” the book said. “To ensure resilience in the face of future shocks, further debt reduction is once again needed.”

The book, which was launched last week, traces major episodes of financial stress in the Philippines, including the 1981 Dewey Dee crisis, the 1983 debt moratorium, the 1997 Asian financial crisis, the 2007 to 2009 global financial crisis and the COVID-19 pandemic.

BSP Governor Eli Remolona Jr., in the foreword, said the Philippines has moved from “debt fragility to more resilient balance sheets,” from “vulnerable banks to a sturdier system” and from a narrow view of crises to a more forward-looking approach to risk.

Still, Remolona said “resilience is not a fixed state.”

“The challenge now is to sustain and deepen it while pursuing growth, inclusion and innovation, without recreating the weaknesses that past crises exposed,” he said.

The book said the 1983 debt moratorium remained the most severe crisis because the country had exhausted its macroeconomic buffers, with unsustainable debt and foreign reserves that could not cover maturing obligations.

By contrast, tax reforms, improved debt management and the buildup of reserves helped the country withstand the global financial crisis and respond to the pandemic without losing access to external financing.

But the pandemic response came at a cost. The book said the public debt-to-gross domestic product ratio rose by 20 percentage points in 2020 and 2021 to 60 percent of GDP.

Latest data from the Bureau of the Treasury showed the country’s debt-to-GDP ratio rose to 65.2 percent at end-March from 63.2 percent at end-2025, marking the highest annual level since it hit 65.7 percent in 2005.

It also flagged governance risks in infrastructure spending, saying recent experience showed that the governance of infrastructure projects remains “an important concern.” Public-private partnerships, it said, “could, in some cases, mitigate such concerns.”

The book said the Philippines also needs deeper financial markets, particularly bond markets, to better spread risks and reduce reliance on bank lending or the internal capital markets of conglomerates.

It added that major crises are often triggered by shocks beyond the control of policymakers. “The only way to prepare for such unexpected shocks is to build buffers or minimize the buildup of risks in both the financial and public sectors,” it said.