The Philippine government aims to cut its reliance on foreign borrowings significantly in the coming years to reduce exposure to foreign exchange risks, according to Secretary Ralph Recto of the Department of Finance (DOF). In a recent press briefing, Recto highlighted the administration’s strategy to shift the financing mix toward increased domestic borrowings.
While the government continues to explore issuing bonds in various currencies, including Euro, Yen, Sukuk (Islamic bonds), and Dollar, the focus remains on reducing foreign debt.
“We’re considering all options, but the goal is to limit foreign borrowings as much as possible,” Recto said. “For 2025, the mix is expected to be 75% domestic and 25% foreign borrowing, with plans to further adjust to 80-20 from 2025 to 2028.”
Gross borrowings for 2024 are projected to reach P2.570 trillion, slightly decreasing to P2.55 trillion in 2025. Over the medium term, the government aims to reduce the foreign borrowing component even further, potentially achieving a 90-10 borrowing mix, where only 10% of total borrowings come from foreign sources.
Recto emphasized that while achieving the 90-10 target may extend beyond 2028, the groundwork is being laid to minimize foreign exchange risks. “This is a gradual shift. If we currently have a 70-30 mix, we’re moving to 75-25, then 80-20, and eventually 85-15. The ultimate goal is to bring foreign borrowing exposure down to 10%,” he said.
While the 90-10 target is unlikely to be fully realized under the current administration, Recto underscored that the long-term plan has been set in motion. “It’s a roadmap for the next administration to follow through,” he added.
Strategic bond issuance
Recto also outlined the government’s strategy for bond issuance in 2025. The Bureau of the Treasury (BTr) is considering offering Euro and Dollar bonds in the first half of the year, alongside exploring Sukuk and Yen-denominated bonds to diversify funding sources.
“Global investors, including those in the Middle East and Japan, have shown an appetite for these financial instruments. If they’re willing to finance government operations, it makes sense for us to take advantage of the opportunity,” Recto explained.
In 2023, the Philippine government successfully raised $1 billion from its maiden Sukuk bond issuance, marking a significant milestone in tapping Islamic financial markets. Recto noted that Sukuk bonds continue to attract interest from Middle Eastern investors, making it a viable option for future issuances.
Recto pointed out the favorable timing of Yen-denominated bonds, given the depreciation of the Japanese Yen. “Borrowing from Japan is advantageous because of the current exchange rate. Beyond that, we want to establish stronger connections with Japanese investors and keep the Philippines on their radar,” he said.
Economic implications of the borrowing strategy
The government’s shift toward domestic borrowing reflects a broader strategy to mitigate foreign exchange risks, stabilize debt servicing costs, and strengthen the local financial market.
Reducing reliance on foreign debt shields the Philippines from currency fluctuations, which could otherwise inflate the cost of debt repayment. By focusing on domestic borrowings, the government also fosters liquidity in the local bond market, encouraging participation from domestic banks, financial institutions, and retail investors.
Recto emphasized that the move is not just about risk reduction but also about sustainability. “By increasing domestic borrowings, we ensure that debt servicing remains manageable and less vulnerable to external shocks,” he said.
Broader economic outlook
The borrowing strategy aligns with the Philippines’ positive economic outlook for 2025 and beyond. Fitch Ratings recently projected the country’s GDP growth to reach 5.7% in 2024, accelerating to 5.9% in 2025 and 6.2% in 2026. This growth is supported by robust domestic consumption, continued infrastructure spending, and favorable inflation trends.
Inflation, a major concern in recent years, is now under control, with the Bangko Sentral ng Pilipinas (BSP) projecting it to average around 3% in the coming years. This provides a conducive environment for the government to focus on growth-oriented policies, including its borrowing strategy.
Recto highlighted the interconnected nature of fiscal policy and economic performance: “A well-managed borrowing program ensures that we have the resources to fund essential projects without overburdening future generations.”
While the shift toward domestic borrowing is a prudent move, challenges remain. Domestic financial markets must be sufficiently deep and liquid to absorb the increased demand for government securities. The government must also maintain investor confidence by ensuring fiscal discipline and transparency.
On the global front, geopolitical uncertainties, fluctuating interest rates, and changing investor sentiment could impact the government’s ability to secure favorable terms for foreign borrowings.
Despite these challenges, the Philippines’ diversified approach to bond issuance presents opportunities to tap into new investor bases, enhance its global financial presence, and secure funding for critical development projects.
The Philippine government’s move to reduce foreign borrowings and focus on domestic financing marks a strategic shift toward mitigating external risks and fostering economic resilience. By gradually transitioning to a 90-10 borrowing mix, the administration lays the groundwork for sustainable fiscal management and economic growth.
With proactive strategies for bond issuance and a robust plan for domestic borrowing, the country is well-positioned to navigate domestic and global challenges while capitalizing on growth opportunities. As Recto aptly stated, “The goal is to reduce risks while ensuring that we have the resources to build a stronger, more resilient economy.”
