PH external debt service up 71% in January

The government has started to prepay some of its external loans, resulting in higher external debt service burden of $780 million for the first month of 2023, up by 70.67 percent versus $457 million same time in 2022. Based on the latest data from the Bangko Sentral ng Pilipinas (BSP), principal payments surged by 248.6 percent year-on-year to $258 million from $74 million. Interest payments, meanwhile, went up by 36.29 percent to $522 million compared to $383 million same time last year. Principal external debt service are mostly fixed medium to long term credits. Interest payments are on fixed and revolving short-term credits of banks and non-banks. However, debt service burden represents principal and interest payments after rescheduling. It includes International Monetary Fund credits, loans covered by the Paris Club and commercial banks rescheduling, and New Money Facilities. But it does not include prepayments of future years' maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and non-banks. In 2020 and 2021, the government was doing a lot of prepayments in the first two quarters of each year. In 2022, debt service burden decreased to $8.59 billion from $9.12 billion in 2021. As previously explained by BSP Deputy Governor Francisco G. Dakila Jr., debt service burden decreases when there are no prepayments of loans and bond redemptions and repayments from the public and private sectors during a period or a month. The opposite happens when the government prepays or repays past external loans. As of end-2022, the country’s total outstanding external debt was up by 4.5 percent year-on-year to $111.27 billion. This represents a ratio-to-GDP of 27.5 percent, higher than the percentage to GDP in 2021 of 27 percent. The BSP said a GDP ratio of 27.5 percent is still considered manageable debt levels. It also means the country has sustained capability to service foreign borrowings in the medium- and long-term. Public sector external debt amounted to $67.4 billion while private sector debt totaled $43.9 billion. Last year, the country’s debt service ratio (DSR) continued to improve at 6.3 percent compared to 7.5 percent in 2021 because of higher receipts and lower repayments. The DSR, which is the debt service burden, measures the Philippines’ foreign exchange earnings and its adequacy to meet maturing obligations. About 85.1 percent of the country’s external debt maturity profile are medium- and long-term or with original maturities longer than one year. Short term accounts or loans with original maturities of up to one year accounted for only 14.9 percent of external debt, mostly bank liabilities, trade credits and others. To date, Philippines’ $111.27 billion external debt is higher than the gross international reserves which as of end-March stood at $101.5 billion.