PH external debt service rose 210% in first 2 months

The country’s debt service burden increased by 210 percent to $2.14 billion for the first two months of 2023 compared to only $691 million same time last year, based on Bangko Sentral ng Pilipinas (BSP) data.

As of end-february, principal payments went up by 466.50 percent as both public and private sectors prepaid or repaid foreign currency loans. Principal payments increased to $1.17 billion for the first two months from $206 million in 2022.

Meanwhile, interest payments on these loans rose 100.8 percent to $974 million versus $485 million same time last year.

Principal external debt service are mostly fixed medium to long term credits. Interest payments are on fixed and revolving short-term credits of banks and non-banks.

Debt service burden represents principal and interest payments after rescheduling. It includes International Monetary Fund credits, loans covered by the Paris Club and commercial banks rescheduling, and New Money Facilities. But it does not include prepayments of future years’ maturities of foreign loans and principal payments on fixed and revolving shortterm liabilities of banks and non-banks.

As of end-2022, the country’s total outstanding external debt was up by 4.5 percent year-on-year to $111.27 billion. Public sector external debt amounted to $67.4 billion while private sector debt totalled $43.9 billion.

In 2022, debt service burden decreased to $8.59 billion from $9.12 billion in 2021.

In 2020 and 2021, the government was doing a lot of prepayments in the first two quarters of each year.

Last year, the country’s debt service ratio (DSR) continued to improve at 6.3 percent compared to 7.5 percent in 2021 because of higher receipts and lower repayments. The DSR, which is the debt service burden, measures the Philippines’ foreign exchange earnings and its adequacy to meet maturing obligations. About 85.1 percent of the country’s external debt maturity profile are mediumand long-term or with original maturities longer than one year. Short term accounts or loans with original maturities of up to one year accounted for only 14.9 percent of external debt, mostly bank liabilities, trade credits and others. BSP Deputy Govenor Francisco G. Dakila Jr. said earlier that debt service burden decreases when there are no prepayments of loans and bond redemptions or repayments from the public and private sectors during a period or a month. The opposite happens when the government prepays or repays past external loans. Philippines’ external debt was represents a ratio-to-gdp of 27.5 percent, higher than the percentage to GDP in 2021 of 27 percent. The BSP said a GDP ratio of 27.5 percent is still considered manageable debt levels. It also means the country has sustained capability to service foreign borrowings in the medium- and long-term. About 85.1 percent of the country’s maturity profile of its external debt are medium- and long-term (MLT). Short term accounts accounted for only 14.9 percent of the outstanding debt stock. This means that foreign currency requirements for debt payments are still well spread out and manageable, said the BSP. Of the MLT accounts, 56.5 percent have fixed interest rates, 41.7 percent carry variable coupon rates, and 1.8 percent balance are non-interest bearing. By country, Japan is the biggest creditor with $14.7 billion debt, followed by the US with $3.5 billion and the United Kingdom with $3.2 billion. Meanwhile, about 37.9 percent of outstanding external debt are loans from official sources while 33.1 percent are borrowings in the form of bonds or notes. Another 22.9 percent are obligations to foreign banks and other financial institutions.