External debt service drops 64.6% — BSP

Published July 24, 2022, 9:10 PM

by Lee C. Chipongian

The country’s external debt service declined by 64.60 percent as end-April to $1.62 billion against $4.59 billion in the same period last year since no prepayments were made by the government at that time.

Debt service means prepayments of loans and bond redemptions or repayments from the public and private sectors.

Based on data from the Bangko Sentral ng Pilipinas (BSP), external debt service burden is sharply lower in the months of January until April this year when compared to 2021 numbers. The reason for this, as explained by BSP Deputy Governor Francisco G. Dakila Jr. earlier, is because the debt service burden is higher in 2021 after the government redeemed a significant amount of maturing bonds coupled with the private sector’s prepayment of loans.

US dollar/Manila Bulletin file photo

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.

BSP data showed principal payments as of end-April dropped by 81 percent to $714 million compared to $3.78 billion same time in 2021. These are mostly fixed and revolving short-term liabilities of both banks and non-banks.

Interest payments, which do not include prepayments on future years’ maturities of foreign loans increased by 12.20 percent to $910 million end-April from $811 million last year.

The country’s total outstanding external debt as of end-March amounted to $109.75 billion, up by 13.09 percent from $97.05 billion same period in 2021. The external debt is 27.5 percent of GDP, higher than 26.6 percent of GDP in 2021.

The debt service ratio (DSR) dropped to 4.1 percent from 14.3 percent in 2021 because of the scheduled lower repayments plus higher receipts.

The DSR, which relates principal and interest payments (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.

In managing the country’s external debt level and to ensure debt sustainability, the BSP has safety mechanisms in place, such as requiring all banks and corporations both public and private to submit to the BSP its foreign borrowings plan each year, with a usual deadline of September 30.

This approval mechanism allows the central bank to analyze the size of external debt and its implications on economic variables such as gross international reserves, balance of payments and money supply.

Last week, the BSP issued an advisory reminding the public and private sectors to submit their foreign borrowings plan for the fourth quarter 2022 and for the whole of 2023.

These are all public and private resident entities, intending to: obtain medium- and long-term foreign loans/borrowings from non-residents, including offshore issuances of debt instruments; and issue onshore debt instruments that require settlement in foreign currency. Banks, foreign parent companies and affiliates, borrow offshore via the issuance of bonds or securities in the international capital markets.