External debt service up 5.4% in 2018 at $7.7 B

By Lee C. Chipongian

The Philippines’ external debt service burden rose by 5.4 percent in 2018 to $7.704 billion from $7.309 billion in 2017 as public sector borrowing to fund infrastructure projects increased last year.

Bangko Sentral ng Pilipinas (BSP) logo

Based on Bangko Sentral ng Pilipinas (BSP) data, external debt service principal payments amounted to $4.811 billion last year from $4.768 billion in 2017, up by 0.90 percent. Interest payments increased by 13.85 percent to $2.893 billion from $2.541 billion.

While there were new public sector borrowings for infrastructure development, the private sector also availed of new foreign loans for funding base, working capital and to lengthen term liabilities.

In 2018, as reported by the BSP, the total outstanding external debt of both the public and private sector amounted to $79 billion, up eight percent year-on-year or from $73.1 billion in 2017. The outstanding foreign debts increased because of net availments by the public sector amounting to $3.5 billion last year, and another $3.2 billion from the private sector.

The National Government, in particular, have more financing for its infrastructure development and social spending programs while private banks were required to increase its funding to comply with Basel 3 rules on liquidity coverage ratio, according to the central bank.

Public sector external debt as of end-December 2018 increased to $39.7 billion from $39.5 billion as of end-September. Foreign borrowings from the private sector debt also increased to $39.3 billion from $36.9 billion.

Despite the higher debt service burden, the BSP said key external debt indicators “remained at prudent levels despite the rise in external debt.”

Based on the BSP report, the debt service ratio or DSR, which relates principal and interest payments (or debt service burden) to exports of goods and receipts from services and primary income, is a measure of adequacy of the country’s foreign exchange earnings to meet maturing debt obligations.

“For the period January to December 2018, the ratio increased to 6.3 percent from 6.2 percent recorded for the same period a year ago due to larger payments made from January 2018 to December 2018. However, the ratio improved compared with
6.8 percent for the period January to September 2018,” the BSP said. The DSR has consistently remained at single digit levels, and well below the international benchmark range of 20 to 25 percent,” it added.