PH debt service burden rises 29.18%

Published July 26, 2021, 4:27 PM

by Lee C. Chipongian

The country’s external debt service burden continue to increase as of end-April to $4.480 billion or up by 29.18 percent from same period last year of $3.468 billion, based on Bangko Sentral ng Pilipinas (BSP) data.

Principal payments totalled $3.720 billion, up from $2.532 billion end-April 2020. This was an increase of 46.92 percent year-on-year.

Interest payments continue to decline to $760 million or down by 18.72 percent compared to same time last year of $935 million.

The country’s debt service ratio (DSR) during the first quarter this year increased to 13.5 percent from 10.9 percent in March 2020 due to higher payments and lower receipts, according to the BSP when it released the end-March Philippine external debt number.

DSR which relates principal and interest payments or debt service burden to exports of goods and receipts from services and primary income, measures the country’s foreign exchange earnings and if this is adequate enough to pay for external loans when they mature.

As of end-March, the Philippines has an outstanding foreign debt of $97.047 billion, up by 19.19 percent year-on-year or by $15.63 billion.

The Duterte government had to borrow more loans from offshore for its anti-pandemic response and budget financing. As a solvency indicator, external debt-to-GDP ratio went up to 27.2 percent in the first quarter this year versus 21.4 percent in 2020. The country’s external debt-to-GDP ratio however is one of the lowest in ASEAN.

BSP Governor Benjamin E. Diokno said last month that the country’s debt repayment profile is still healthy and have some headroom to increase foreign borrowing.

Diokno said a large part of the country’s external debt has medium-and-long term (MLT) maturity profile, which supports a manageable debt repayment schedule. He also said that bulk of foreign borrowings have fixed interest rates which make them not susceptible to global interest rates volatilities or foreign exchange fluctuations.

As of end-March, about 85.9 percent of the country’s external debt stock are MLTs or those with original maturities longer than one year. Short term accounts or those with original maturities of up to one year, accounted for 14.1 percent.

The BSP said the weighted average maturity for all MLTs stood at 17.1 years, higher than 16.6 percent recorded end-December 2020. The public sector borrowings have a longer average term of 20.9 years compared to the private sector’s 7.3 years. “This means that FX (foreign exchange) requirements for debt payments are well spread out and, thus, more manageable,” said the BSP.

The BSP has removed the annual foreign borrowing ceiling – about $5 billion per year – to allow both the public and private sector to take out as much foreign loans as they need.

Diokno said the central bank is not planning on reimposing the foreign borrowing cap since it was removed in 2016.