PH external debt service drops 77.71%

Published May 15, 2022, 9:10 PM

by Lee C. Chipongian

The country’s external debt service burden fell significantly lower to $678 million as of end February or down by 77.71 percent from $3.04 billion same time in 2021 because there were no prepayments during this period.

In January, the decrease was sharper at 81.60 percent to $456 million versus $2.48 billion last year, according to Bangko Sentral ng Pilipinas (BSP) data.

BSP Deputy Governor Francisco G. Dakila Jr. said the decline was mainly due to the absence of prepayments of loans and bond redemptions/repayments from the public and private sectors in the first two months of 2022.

US dollar Reuters/File Photo (Manila Bulletin)

Dakila, in an email to Manila Bulletin, said that by contrast, the debt service burden was higher in 2021 after the National Government redeemed a “significant amount of maturing bonds coupled with the private sector’s prepayment of loans.”

BSP Deputy Governor Francisco G. Dakila Jr.

“It may be noted that the country’s external debt to gross domestic product ratio of 27 percent as of end-December 2021 remained at prudent levels, indicating the country’s sustained strong position to service its foreign obligations in the medium to long-term,” said the BSP official. “The ratio is one of the lowest as compared to other selected ASEAN member countries,” he added.

Debt service burden 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, other loans and facilities.

Based on BSP data, principal payments as of end-February fell by 91.86 percent to $207 million compared to $2.54 billion in February 2021. These are mostly fixed and revolving short-term liabilities of both banks and non-banks.

In terms of interest payments, this was slightly lower at $471 million or down by 5.23 percent from $497 million same time last year. Interest payments do not include prepayments on future years’ maturities of foreign loans.

The country’s outstanding external debt stood at $106.43 billion in 2021, up by 8.1 percent year-on-year or from $98.49 billion. External debt on a quarter-on-quarter basis was slightly higher by 0.5 percent from $105.9 billion end-September 2021.

External debt has remained at manageable levels in terms of GDP ratio in 2021 and in 2020. As a solvency indicator, the BSP said the low GDP ratio still “indicates the country’s sustained strong position to service foreign borrowings in the medium to long-term.”

At end-2021, the debt service ratio (DSR) increased to 7.2 percent from 6.7 percent in 2020 from higher payments. The DSR shows the country’s sufficient foreign exchange hoard to meet maturing obligations.

Of the $106.43 billion external debt, the public sector accounted for $63.9 billion or 60 percent of the total. This was 9.99 percent higher from 2020’s $58.12 billion.

About $55.4 billion or 86.7 percent of public sector obligations were government borrowings while the remaining $8.5 billion were loans of government-owned and/or controlled corporations, government financial institutions and the BSP.

Private sector external debt which accounted for 39.9 percent of the total, increased by 5.25 percent year-on-year to $42.94 billion from $40.37 billion in 2020.

The BSP has always said that pandemic-induced rising debt is unavoidable but not likely to lead to a credit rating downgrade in the future because the economy will sustain its growth, post-Covid 19.