Due to prepayments of principals, the country’s debt service burden on its external debt amounted to $8.187 billion as of end-July this year, up 137 percent compared to same period in 2022 of $3.448 billion, based on the latest Bangko Sentral ng Pilipinas (BSP) data.
Principal payments increased by 110 percent to $4.282 billion versus $2.042 billion same time last year. Principal external debt service are mostly fixed medium to long term credits.
Interest payments as of end-July totaled $3.905 billion, up 178 percent compared to $1.406 billion end-July 2022. Interest payments are on fixed and revolving short-term credits of banks and non-banks.
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 officials have explained that when both the government and private sector makes a lot of prepayments or repayments, the debt service burden increases. It declines when there are no prepayments of loans and bond redemptions or repayments.
As of end-June this year, the total outstanding external debt grew 9.5 percent year-on-year to $117.918 billion from $107.692 billion same time in 2022.
On a quarterly basis, the external debt slightly dipped 0.8 percent or by $894 million from its end-March level of $118.8 billion. The BSP attributed the lower debt level in the second quarter from the impact of the US dollar appreciation against other currencies in reaction to continued US Federal Reserve policy rate tightening.
The $117.918 billion external debt is equivalent to 28.5 percent of the country’s gross domestic product (GDP), higher from same time last year of 26.8 percent.
As of end-June, public sector external debt dropped to $74.5 billion in the second quarter of 2023 from the previous quarter’s $75.2 billion. Private sector debt also declined to $43.4 billion from $43.6 billion end-March.
The BSP reported that the debt service ratio (DSR) increased to 11 percent from 4.6 percent same period last year due to higher repayments in the second quarter of 2023.
The DSR relates principal and interest payments or debt service burden to exports of goods and receipts from services and primary income.
The BSP said the DSR level still indicate that the country has adequate foreign exchange resources to meet maturing obligations. As of end-August this year, the central bank’s US dollar stock total almost $100 billion.
As of end-June, the external debt’s maturity profile is still predominantly medium- and long-term (MLT) or with original maturities longer than one year.
About 85.3 percent or $100.6 billion are MLT loans and the weighted average maturity for all MLT accounts remained at 17.3 years, with public sector borrowings having a longer average term of 20.1 years compared to 7.2 years for the private sector.
Short-term accounts or those with original maturities of up to one year accounted for 14.7 percent of total debt stock such as bank liabilities, trade credits and others.
The BSP said 57.2 percent or $57.5 billion of MLT accounts have fixed interest rates while 41.2 percent or $41.4 billion have variable rates. The rest or 1.7 percent or $1.7 billion are non-interest bearing.
The BSP since 2022 is using a more accurate debt monitoring system and management of external debt data to improve its analysis and early warning signals.
Called the Debt Management and Financial Analysis System (DMFAS) 6, this is part of BSP mandate to implement an effective external debt management system.
DMFAS, a database software currently adopted by 105 finance ministries, central banks, and other debt management offices in 69 countries, is used to record, monitor, report and analyze available debt data.