With public and private sector’s prepayment of foreign loan obligations, the country’s external debt service burden increased by 158.3 percent to $6.456 billion as of end-May from same period last year of $2.499 billion.

Based on the latest data from the Bangko Sentral ng Pilipinas (BSP), principal debt service payments rose 156.15 percent to $3.476 billion compared to end-May 2022’s $1.357 billion. These are mostly fixed and revolving short-term liabilities of both 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.

As of end-May, interest payments on debt service burden went up by 137.3 percent to $2.71 billion versus $1.142 billion same period in 2022.

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-March this year, the country’s outstanding external debt stood at $118.81 billion, up by 8.25 percent compared to same period last year of  $109.75 billion. The external debt is equivalent to 29 percent of gross domestic product (GDP), higher than 27.5 percent from end-December and end-March 2022.

The public sector’s external debt reached $75.2 billion during the period, higher than $67.4 billion in the previous quarter. About $68.1 billion or 90.5 percent were National Government (NG) borrowings, while $7.1 billion were loans by government-owned and controlled corporations, government financial institutions and the BSP.

Private sector debt was at $43.6 billion compared to $43.9 billion end-2022.

The BSP said borrowings by the public sector for the NG’s general financing requirements, funding of pandemic recovery measures, and other infrastructure programs, among others, contributed to the growth in the external debt stock.

As for the debt service ratio (DSR), this increased to 12.9 percent from four percent same period last year because of repayments in the first quarter.

The DSR, which relates principal and interest payments or the 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.

Philippines’ debt stock is predominantly medium- and long-term (MLT) in nature at 85.4 percent, or with original maturities longer than one year. About 14.6 percent are short-term accounts or up to one year maturities. This means that foreign exchange requirements for debt payments are still well spread out and manageable.

The weighted average maturity for all MLT accounts is 17.3 years with public sector borrowings having a longer average term of 20.2 years compared to 7.2 years for the private sector.

The BSP is mandated to review all foreign borrowing plans for external debt management and under the rules of the country’s foreign exchange (FX) 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.

Last Aug. 2, the BSP has issued an advisory reminding both the public or government sector, and private entities such as banks and corporates to submit its foreign borrowing plans by Sept. 30 this year.

These foreign borrowing plans are for the fourth quarter 2023 and for the full-year 2024 period.

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 – of 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.

From the submissions of both the private and public sector of their planned foreign loans, the BSP could estimate what it called an “indicative funding requirements” every year.