Debt service surges 125% as of end-Aug

THE country’s external debt service burden more than doubled at the end of August following a surge in both interest and principal payments, preliminary Bangko Sentral ng Pilipinas (BSP) data showed.

At $8.89 billion, the external debt service burden was 125 percent higher compared to the $3.95 billion recorded a year earlier.

Both principal and interest payments surged during the eight-month period, the former by 92 percent to $4.46 billion from $2.32 billion, and the latter by 171 percent to $4.42 billion from $1.63 billion.

The debt service burden comprises principal and interest payments on fixed medium- to long-term credits including those from the International Monetary Fund, loans subject to Paris Club agreements and commercial bank rescheduling, as well as New Money Facilities.

It also includes interest payments on fixed and revolving short-term liabilities of banks and nonbanks but not prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities.

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The country’s outstanding external debt, meanwhile, reached $117.92 billion as of end-June, the BSP data showed. This was 9.5 percent higher compared to year-earlier $107.69 billion.

Broken down, $74.48 billion of the amount was owed by the public sector, up 13.3 percent from the $65.71 billion recorded a year earlier.

Private-sector debt, meanwhile, amounted to $43.44 billion, 3.4 percent higher than the $41.98 billion reported at the end of the same period last year.

As a percentage of gross domestic product (GDP), the debt service burden rose to 3.6 percent as of end-June from 1.5 percent a year earlier.

External debt, meanwhile, was equivalent to 28.5 percent of GDP for the same period, up from 26.8 percent in January-June 2022.

Sought for comment, Rizal Commercial Banking Corp. chief economist Michael Ricafort said debt servicing increased due to larger maturities of government debt, higher local interest rates and a weaker peso.

“For the coming months, debt servicing could be somewhat tempered by the recent downward correction in global and local bond yields and possible policy rate cuts by the Fed (US Federal Reserve) and other global central banks that could reduce borrowing costs,” he added.

“A stronger peso exchange rate would also reduce the peso equivalent of foreign debts and the debt servicing.”

Domini Velasquez, chief economist at China Banking Corp., said the surge was expected given the rise in interest rates.

“On a positive note, principal debt remained largely the same. The country’s external debt position will benefit from expected policy rate cuts in the 2nd half of 2024,” she added.