The Philippines’ external debt service burden went up 25 percent to $8.29 billion as of end November 2021 from $6.63 billion same period in 2020, based on the latest Bangko Sentral ng Pilipinas (BSP) data.

External debt principal payments which are fixed and revolving short-term liabilities of both banks and non-banks amounted to $6.26 billion, up by 40.35 percent from $4.46 billion in 2020.

Interest payments continued to decline to $2 billion as of end-November 2021 versus $2.16 billion of the previous year or down by 7.40 percent. Interest payments do not include prepayments on future years' maturities of foreign loans.

Debt service burden as BSP defines it, represents both principal and interest payments after rescheduling. The 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 country’s outstanding external debt stock of $105.93 billion as of end-September 2021 was up by 15.16 percent year-on-year on account of pandemic-related and other fiscal-boosting government foreign borrowings.

The debt level has a GDP ratio of 27.3 percent and considered one of the lowest in the region.

The debt service ratio or DSR was at 8.1 percent due to higher payments. The DSR indicates that the country’s foreign exchange earnings is adequate to meet maturing loan payments while the external debt to GDP is a solvency indicator.

Of the $105.94 billion debt stock, public sector borrowings accounted for $65.2 billion of which $56.9 billion were government borrowings while the remaining $8.4 billion were loans of government-owned and controlled corporations, government financial institutions and the BSP. The private sector debt totaled $40.7 billion as of end-September or 38.4 percent of the total.

To make sure foreign debt level continue to be manageable, the BSP is mandated to review and approve all public sector or government foreign borrowings under Section 20, Article VII of the 1987 Philippine Constitution.

The BSP used to have a $5 billion to $12 billion foreign borrowing cap for both the government and private sector loans to control the size of the country’s external debts. However, the BSP removed the limit in 2016 since there are existing laws that already place a ceiling on foreign debts such as the Foreign Borrowings Act or Republic Act No. 4860 and other exceptions detailed under the Official Development Assistance Act or RA No. 8182.

Imposing a ceiling on foreign borrowings is an inherited program from the days when the Philippines was still under the tutelage of the International Monetary Fund (IMF).

Under the IMF, the government used to have a $10-billion ceiling for all of its foreign borrowings to prevent the country from accumulating foreign debt as what happened during the presidency of Ferdinand Marcos Sr. Marcos placed the entire Philippines under Martial Law rule for 14 years, or from 1972 until 1981. The country’s debt stock ballooned during Martial Law or by $21.73 billion, according to local economists.