External debt service declines 15.77% in July

Published November 3, 2020, 5:30 AM

by Lee C. Chipongian

 The country’s external debt service burden was down 15.77 percent to $4.406 billion as of end-July from $5.231 billion same time last year, based on data from the Bangko Sentral ng Pilipinas (BSP).

Debt service burden is principal and interest payments on both the public and private sector debts after rescheduling.

Principal payments decreased 11.99 percent to $2.861 billion from $3.251 billion during while interest payments was down 22.02 percent to $1.544 billion from $1.980 billion in end-July 2019.

While external debt service burden represents principal and interest payments, it does not include prepayments on future loan maturities. The principal and interest payments are on fixed medium to long term credits, loans and new money facilities. Interest payments also include fixed and revolving short-term liabilities of both banks and non-banks.

The BSP earlier reported that as of end-June, the total outstanding external debt reached $87.453 billion, up by 7.6 percent year-on-year. Foreign debt increased due to government foreign borrowings to finance its COVID-19 response.

The BSP said the debt service ratio which is an indicator of a country’s sufficient stock of foreign exchange, is still adequate. As of end-June, the ratio increased to 7.8 percent from 7.7 percent in 2019.

The BSP has said that the country’s external debt numbers and ratios are still at comfortable levels despite more government borrowings because of the pandemic.

The BSP’s policy-making arm, the Monetary Board, has approved as of end-July $5.6 billion worth of government foreign borrowings. These include: the $2.6 billion loan from the Asian Development Bank; $1.5 billion from the World Bank-International Bank for Reconstruction and Development; $750 million from the Asian Infrastructure and Investment Bank; $477 million (50 billion Japanese yen) from the Japan International Cooperation Agency; and $295 million (EUR250 million) from Agence Francaise de Developpement.

In managing the country’s external debt level and to ensure sustainability, the BSP has safety mechanisms in place, such as requiring all banks and corporations both public and private to submit to the BSP its foreign borrowings plan in a given year. The approval mechanism enables BSP to analyze the size of external debt and its implications on economic variables such as gross international reserves, balance of payments and money supply.

Under the law (Republic Act No. 4860 or the The Foreign Borrowings Act), foreign borrowings will have to be submitted as “foreign borrowings plan” to the BSP for assessment, as well as monitoring. It is part of its analysis on the size of the country’s external debt and its “implications on key economic variables” such as foreign exchange reserves.