PH debt service burden up 25%

Published November 28, 2021, 10:05 PM

by Lee C. Chipongian

The Philippines posted an external debt service burden of $6.8 billion as of end August this year, up 25.5 percent from same period in 2020 of $5.42 billion, based on Bangko Sentral ng Pilipinas (BSP) data.

BSP Governor Benjamin E. Diokno

The external debt principal payments rose by 41.40 percent year-on-year to $5.26 billion versus $3.72 billion. Principal payments are on fixed and revolving short term liabilities of banks and non-banks.

Interest payments, on the other hand, fell by 9.82 percent to $1.53 billion from $1.70 billion last year. These payments are on fixed and revolving short-term liabilities of banks and non-banks but do not include prepayments on future years’ maturities of foreign loans.

Debt service burden represents both principal and interest payments after rescheduling. The BSP said principal and interest payments on fixed medium to long term credits include International Monetary Fund credits, loans covered by the Paris Club and commercial banks’ rescheduling, and New Money Facilities.

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 (DSR) also increased to 9.4 percent as of end June from 8.4 percent same period in 2020 because of higher payments.

The DSR, which relates principal and interest payments or the debt service burden to exports of goods and receipts from services and primary income, measures the country’s ability to pay for maturing foreign currency loans.

The outstanding total external debt as end June rose by 15.66 percent year-on-year to $101.2 billion from $87.5 billion.

“The country’s outstanding external debt remains at a prudent level as its ratio to GDP slightly eased to 26.5 percent in end-June 2021,” said BSP Governor Benjamin E. Diokno.

The external debt ratio vis-à-vis the GDP is slightly lower than end-March’s 26.6 percent on account of the 12 percent GDP growth in the second quarter.

The external debt to GDP ratio is still one of the lowest in the ASEAN bloc.

“Notably, a large portion of our external debt has medium- and long-term maturity profile and carry fixed interest rates. These support a manageable debt repayment schedule and foreign borrowings are less susceptible to volatilities in global interest rates or foreign exchange fluctuations,” said Diokno.