PHL could see unsustainable debt levels with climate risk


THE Philippines is among those that could see unsustainable debt levels due to climate change, according to the latest report released by the United Nations Economic and Social Commission for Asia and the Pacific (Unescap).

Based on the latest Economic and Social Survey of Asia and the Pacific 2023: Rethinking Public Debt for the Sustainable Development Goals (SDGs), the UN agency said the average government debt level in the Asia-Pacific region is at an 18-year high.

The report said climate risks are threatening the sustainability of public debt in many developing countries, especially those that are vulnerable to climate change, such as the Philippines.

“A higher debt level does not necessarily mean a higher risk of debt distress,” said Armida Salsiah Alisjahbana, United Nations Under-Secretary-General and Executive Secretary of Unescap, in a statement.

“Nor is higher debt necessarily detrimental to economic growth. Rather, deploying public debt as an investment in people and the planet offers sizable medium- and long-term economic, social and environmental returns,” she added.

Citing another study, Unescap said the exposure to climate risk has an impact on the borrowing costs of sovereigns.

The study estimated that countries vulnerable to climate could see a climate-related premium of 275 basis points on their sovereign debts.

The study defined that this high-risk group comprises India, Indonesia, Japan, the Kingdom of the Netherlands, the Philippines, the Republic of Korea, Singapore, Sri Lanka, Thailand and Viet Nam.

The premium for high-risk countries is much higher than the 113 basis point premium for other emerging economies and 155 basis point premium for ASEAN countries in general.

“These findings support the need for policy measures to increase the fiscal space of climate-vulnerable economies, enabling them to finance the most pressing adaptation expenditure through a mix of debt and non-debt financing flows,” the report stated.

Based on the Unescap data, using 2021 data, the Philippines’s gross public debt accounted for 59.95 percent of the country’s GDP.

This is composed of external debt, which accounts for 15.04 percent of GDP, and domestic debt at 41.91 percent of the country’s GDP.

Unescap said the higher share in GDP of domestic debt in the Philippines is common for ASEAN countries, especially after the 1997 Asian financial crisis.

The report said debt securities account for more than 90 percent of total domestic government debt in Indonesia, Malaysia, the Philippines and Thailand.

In order to address these debts and finance climate change as well as SDG needs, Unescap said countries like the Philippines must broaden the tax base and undertake improvements in tax administration.

Unescap also said opportunities to raise financing through the introduction of progressive direct taxes could help finance climate change adaptation and mitigation as well as the achievement of the SDGs.

“The Survey proposes an innovative approach to public debt sustainability analysis that augments the conventional short- to medium-term methodologies of international financial institutions and credit rating agencies. This approach considers a country’s SDG financing needs and strategies along with the Governments’ structural development policies,” Unescap said in a statement.

Unescap also said it may also be time for international financial institutions and credit rating agencies to consider the positive long-term economic, social and environmental outcomes of investing in the SDGs in their assessments of public debt sustainability.

These should also consider whether such spending would boost economic productivity. Unescap said debt relief should be viewed as helping to support the fiscal outlook, rather than as a sign of an upcoming debt default.

It added that effective public debt management reduces fiscal risks and borrowing costs, and there are several examples of good public debt management practices in the Asia-Pacific region.

At the same time, countries with high debt distress levels may need pre-emptive, swift and adequate sovereign debt restructuring, while efforts towards common international debt resolution mechanisms and restructuring frameworks also need to be accelerated.


The growth prospects of economies in Asia ang the Pacific, including that of the Philippines, have weakened, according to the Unescap.

Based on the report, the region is expected to only post a growth of 4.2 percent in 2023 and 4.7 percent in 2024.

The Philippines is expected to grow faster at 5.5 percent in 2023 and 5.7 percent in 2024. This is below the government’s 6-7 percent GDP target this year and 6.5 to 8 percent target for 2024 onward.

“This assessment is influenced by elevated price levels and expected further monetary tightening, which will hold back economic activities,” the report stated.

“The projected slowdown in developed economies can translate into a slowdown in demand for exports, a major growth driver for the region,” it added.

Citing the World Trade Organization (WTO), the report added that global trade volume growth is projected to moderate to 1 percent in 2023 from 3.5 percent in 2022.

Inflation in Asia and the Pacific is projected to moderate slightly to 5.9 per cent in 2023 from 7.6 percent in 2022. It is projected to decline further to 4.4 percent in 2024.

In the Philippines, inflation is seen to average 4.3 percent this year and 3 percent next year. These are within the government’s inflation targets for this year and next year.

“The expected gradual decline in inflation in the next two years is on the back of moderating commodity prices, softening global demand and monetary tightening responses by central banks,” the report stated.

“Core inflation is still on the rise while growth is weakening, and central banks are expected to continue their course in raising interest rates,” the report, however, added.

Revised GDP forecast

Meanwhile, the Philippine Statistics Authority (PSA) also revised GDP growth for the fourth quarter in 2022 to 7.1 percent from the initially reported 7.2 percent.

However, the PSA retained growth estimates for 2022 and 2021 at 7.6 percent and 5.7 percent, respectively.

“In the Philippines growth was driven by robust private consumption, investments and public infrastructure spending along with tourism recovery,” the Unescap report stated of the country’s 2022 growth performance.

The PSA revises the GDP estimates based on an approved revision policy (PSA Board Resolution No. 1, Series of 2017-053), which is consistent with international standard practices on national accounts revisions.