Philippines to adjust borrowing strategy amid global rates uncertainties

MANILA, Philippines — The Philippine government is bracing for higher borrowing costs this year as global interest rates will likely remain elevated, with the US Federal Reserve expected to slow its pace of rate cuts.

In a press briefing, Finance Secretary Ralph Recto said if interest rates were lower, achieving growth targets like seven percent or even 7.5 percent would be more manageable. But with higher rates, the challenge increases.

Recto said markets are expecting the US Fed to cut borrowing costs by 50 basis points this year, slower than the previously anticipated 75 basis points.

The Bangko Sentral ng Pilipinas could follow a similar path, with adjustments depending on inflation trends in the Philippines, he said.

Recto also noted that private sector investment is subdued amid high interest rates and economic uncertainty. Thus, the government is borrowing and spending more to stimulate the economy and keep it growing in the absence of significant private sector activity.

“We are taking up the slack. But once we feel that the private sector is ready to invest, then we can pull back our spending, we can pull back our borrowings,” he said.

“We can reduce our borrowing depending on how the private sector invests. But if they’re not investing yet, because of high interest, then the government has to take it.”

National Treasurer Sharon Almanza said rising US Treasury yields – approaching five percent for 30-year bonds – pose additional challenges for dollar-denominated bond issuances.

“If we issue in dollars, rates could reach six percent,” she said. “We are preparing and we are monitoring the market…We want to borrow at the lowest possible cost.”

To manage these pressures, the government is prioritizing local borrowing, with an 80-20 mix favoring domestic over foreign sources. Recto said this approach reduces exposure to volatile foreign exchange rates and supports local market liquidity.

“We need to focus on two things: growth and reducing the deficit. Economic growth is key to managing debt sustainably,” Recto said.

Meanwhile, Almanza said the government is preparing for potential offshore issuances, including yen bonds and sukuk or Islamic bonds, depending on market conditions.

Efforts are also underway to modernize fundraising methods, including the use of tokenized bonds and digital platforms like GCash for retail investors.