The central bank reported that as of end-June, the country’s “burden” on its servicing of external debt increased 155.25 percent year-on-year to $7.461 billion from $2.923 billion.

Based on Bangko Sentral ng Pilipinas (BSP) data, principal debt service burden totaled $4.182 billion during the period, up by 125.56 percent from $1.854 billion end-June 2022.

Meanwhile, interest payments on the cost of debt servicing rose 2.07 percent to $3.279 billion versus $1.069 billion same period last year.

Philippines' external debt service burden is increasing because of both public and private sector’s prepayment of foreign loan obligations.

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 is required by law to review all foreign borrowing plans for external debt management and under the rules of the country’s foreign exchange transactions and policies.

To be reviewed are both the public and private sector’s MLT foreign loans or borrowings from non-residents, including offshore issuances of debt instruments, and their plans to issue onshore debt instruments that require settlement in foreign currency.

In every review of the country’s foreign borrowing plans, the BSP also takes into consideration any foreign borrowing limit if they have one, at any given year.

The BSP makes it mandatory to submit foreign borrowing plans to monitor the magnitude and timing of foreign financing requirements which would help them in their capital flows projections and its implications on the economy.

The BSP also wants to know the purpose – particularly the private sector’s – why they have to borrow from overseas. Banks, foreign parent companies and affiliates, borrow offshore via the issuance of bonds or securities in the international capital markets.