PH debt service burden up 30%


The Philippines’ external debt service burden continued to increase, it’s up by 29.93 percent year-on-year to $4.914 billion as of end-May versus $3.782 billion in 2020, data from the Bangko Sentral ng Pilipinas (BSP) showed.

External debt principal payments in the first five months increased by 47.46 percent to $4.008 billion from $2.718 billion same time last year.

Interest payments in the meantime, was down by 14.84 percent to $906 million from $1.064 billion last year.

The BSP, in its external debt report, said key external debt indicators remained at prudent levels despite the rise in external debt.

The debt service ratio or DSR as of end-March this year rose to 13.5 percent from 10.9 percent same period in 2020 due to higher payments and lower receipts, according to the BSP. As of end-March this year, the Philippines has an outstanding foreign debt of $97.047 billion, up by 19.19 percent year-on-year or by $15.63 billion.

Pre-pandemic, the DSR has consistently remained at single digit levels. The 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 obligations.

However the external debt ratio which is a solvency indicator, continued to show the country’s still healthy position to service foreign borrowings in the medium to long-term, said the BSP, amid the pandemic.

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 is one of the lowest in ASEAN.

During an inter-agency Development Budget Coordination Committee presentation last week, BSP Governor Benjamin E. Diokno said the BSP ensures that the country’s external sector – with a still manageable external debt and a $107-billion dollar stock – will continue to be on the strong side.

“The BSP will remain supportive of policies that will help strengthen the economy’s resilience to external shocks, including that of maintaining a market-determined exchange rate, keeping a comfortable level of reserves, and keeping the country’s external debt manageable,” said Diokno.

Diokno said that while they expect the peso to experience “some depreciation pressures” from the “eventual Federal funds rate lift-off in the US and the subsequent rise in foreign interest rates”, the structural foreign exchange (FX) flows and healthy gross international reserves (GIR) could provide support on the peso, and help the country to continue to accumulate FX to pay for foreign currency debts.

“(The) recent peso depreciation is partly influenced by broad US dollar strength driven by risk-off sentiment over the spread of the Delta COVID-19 variant and to markets’ perceived shift to a hawkish tone by the US Federal Reserve. In addition, the observed pick-up in corporate dollar demand as the economy gradually re-opens and the Fitch Ratings’ outlook downgrade for the country’s sovereign credit rating added pressure on the peso,” noted Diokno during the DBCC budget hearing.

The BSP continue to expect the peso to have structural FX flows from exports when it recovers, from remittances and business process outsourcing receipts. “FX inflows related to foreign direct investments are also expected to help shore up the currency. Ample GIR could likewise help temper depreciation (of the) peso,” said Diokno.