Early payments on foreign debt decline by 33%

EARLY payments made for foreign loans declined by a third at the end of September, sustaining a downtrend seen earlier this year, according to data from the Bangko Sentral ng Pilipinas (BSP).

At the end of the nine months to September, prepayments totaled $1.562 billion, down 33% from a year earlier.

After an end-June tally of $1.541 billion, only corporates made early payments between July and September amounting to $21 million, according to central bank data. Philippine businesses made early payments on $429.2 million worth of foreign debt in the third quarter, about half the year-earlier total and slightly higher than the $408.5 million level paid as of end-June.

Meanwhile, the state settled $1.133 billion in medium and long-term external debt ahead of schedule, down 23% from a year earlier and unchanged from the end-June total.

The national government and businesses may opt to advance their payments ahead of the arrival of goods and services they avail of, especially when market conditions appear favorable.

“Normally, prepayments are limited to the amount of loans that have prepayment clauses in their contracts. Actual cash position of corporates is also another key consideration,” BSP Deputy Governor Diwa C. Guinigundo said in a text message to reporters.

‘“Finally, exchange rate movements also figure prominently in the corporates’ decision to prepay.”

The third quarter saw heightened market volatility due to both local and external developments. Tough-talking Davao City Mayor Rodrigo R. Duterte assumed the presidency starting June 30, ushering in a political transition after six years under the Aquino administration.

‘On the external front, market jitters increased given the guessing game as to when the United States will raise interest rates, coupled with the European Central Bank’s decision to halt its bond-buying program.

The peso also breached seven-year lows in September.

BSP’s Mr. Guinigundo has said that a declining debt stock held by the government and the private firms could have driven the slide in prepayments, as they previously settled portions of their debt in previous instances. The Philippines’ external debt stood at $77.721 billion as of the first half of 2016, up 3.6% year on year due to fluctuations in foreign exchange values, although 81.3% of total obligations will mature in the medium to longer term. —