Driven by decreases in both principal and interest payments, the Philippines’ external debt service burden (DSB) declined to $6.72 billion by the end of the first semester, from $7.16 billion in the same period in 2024.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that the 6.2-percent drop in the country’s servicing of its foreign debt was driven by a 13.2-percent decrease in principal payments to $2.77 billion from $3.19 billion.

Alongside this was the 0.8 percent decline in interest payments to $3.95 billion, from $3.98 billion as of the end of June last year.

According to Michael Ricafort, chief economist at Rizal Commercial Banking Corp., the overall drop in foreign DSB could be attributed to the government’s strategy of borrowing less from external sources in recent years. This strategy mitigates the risks associated with foreign exchange movements.

Notably, debt sourced externally primarily stems from the need to fund the government’s budget deficit.

Ricafort also stated that if the Philippines is included in the JPMorgan Emerging Market Global Bond Index, more global investors are likely to purchase peso-denominated bonds. Consequently, stronger demand for peso bonds could lift market sentiment and help the government borrow at cheaper costs.

As of end-June, the Philippines’ foreign debt jumped by 14.4 percent to $148.87 billion from $130.18 billion in the same period in 2024. Government debt accounted for $94.8 billion or 63.7 percent of the total, while the private sector accounted for $54.07 billion or 36.3 percent.

Foreign borrowings were equivalent to 27.3 percent of the country’s gross national income (GNI) as of end-June. This ratio climbed from 25.7 percent in the same period last year. It also rose to 31.2 percent of gross domestic product (GDP) as of end-June from 28.9 percent a year earlier.

GNI measures the total income generated by a country’s residents, both domestically and abroad, making it a broader indicator of economic performance than GDP, which only accounts for local output.

By the end of the first half, the country’s external DSB dropped to 2.5 percent of GNI from 2.9 percent a year ago. Similarly, it stood at 2.8 percent of GDP, down from 3.2 percent in 2024.

According to the BSP, the foreign debt service burden represents principal and interest payments after rescheduling.

This covers payments on medium- to long-term loans, including those from the Washington-based multilateral lender International Monetary Fund (IMF), Paris Club agreements, commercial bank restructurings, and new money facilities.

It also includes interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, it excludes prepayments on future maturities of foreign loans and principal payments on short-term bank and non-bank obligations.