Philippine external debt service drops 25% in first quarter

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The Philippines’ external debt service burden fell 24.67 percent to $3.288 billion as of end-March versus $4.365 billion in the same period in 2023, based on Bangko Sentral ng Pilipinas (BSP) data.

The external debt service burden is an indicator of debt sustainability. External debt sustainability refers to a country’s capacity to meet its current and future payment obligations without debt relief, extraordinary assistance, or going into default. BSP officials said that when the government and private sector make 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, external debt service principal payments totaled $1.473 billion, down 46.99 percent from last year’s $2.779 billion.

Interest payments, meanwhile, increased by 14.43 percent to $1.815 billion from $1.586 billion end-March 2023.

Principal external debt service is mostly fixed medium to long-term credits, while 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.

As of end-March, the country’s total outstanding external debt amounted to $128.692 billion, 8.3 percent higher compared to the same period last year of $118.812 billion. More borrowings by the government and private sector, mostly bank loans for liquidity purposes, pushed external debt higher.

The debt service ratio (DSR), which relates principal and interest payments or the debt service burden to exports of goods and receipts from services and primary income, improved to 8.9 percent from 13 percent for the same period last year due to lower scheduled debt service payments in the first quarter of 2024, according to the BSP.

The DSR and the gross international reserves cover short-term debt, which are measures of the adequacy of the country’s foreign exchange resources to meet maturing obligations.

Despite the increase in the debt stock, the external debt ratio, or EDT, expressed as a percentage of gross domestic product, remains at prudent levels at 29 percent from 28.7 percent in the last quarter of 2023.

On a year-on-year basis, debt stock rose by $9.88 billion due mainly to total net availments worth $8.9 billion, of which $5.4 billion are borrowings by private sector entities, mostly banks. Other factors that raised the external debt are the net acquisition of Philippine debt securities by non-residents of $1.5 billion and prior years’ adjustments of $1 billion.

At the end of the first quarter, public sector external debt increased by 1.4 percent or $1.1 billion to $78.9 billion from the previous quarter’s $77.8 billion. Its share to total decreased to 61.3 percent from 62.1 percent a quarter ago.

About 91.6 percent or $72.3 billion of public sector obligations are National Government borrowings. In comparison, the remaining 8.4 percent or $6.6 billion are borrowings by government-owned and controlled corporations, government financial institutions and the BSP.

Private sector debt, on the other hand, increased by 4.7 percent or $2.2 billion to $49.8 billion as of end-March. Its share of total debt stood at 38.7 percent, up from 37.9 percent as of the end of December 2023.