External debt service burden down at end-July

THE PHILIPPINES’ external debt payments declined as of end-July amid a slump in principal payments, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Debt servicing on external borrowings dropped by 7.6% to $7.693 billion in the first seven months from $8.329 billion a year ago.

BSP data showed principal payments fell by 28.1% to $3.112 billion as of end-July from $4.331 billion in the previous year.

On the other hand, interest payments rose by 14.6% to $4.581 billion in the January-July period from $3.998 billion a year earlier.

As of the second quarter, the debt service burden as a share of gross domestic product (GDP) stood at 3.1%, slightly lower than 3.6% in 2023.

Earlier data from the central bank showed outstanding external debt hit a record $130.182 billion at the end of June.

This brought the external debt-to-GDP ratio to 28.9% at end-June, slightly better than the 29% at end-March.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the drop in external debt service burden was largely due to the lower amount of maturing foreign debt from a year ago.

“However, higher interest payments on foreign debts due to still relatively higher interest rates and weaker peso exchange rate versus the US dollar increased foreign debt servicing, particularly on interest payments,” he said.

The local unit closed at P58.365 against the greenback at end-July. For the entire month of July, the peso traded at the P58-per-dollar level before returning to the P57 range by August.

“The National Government (NG) also became more prudent in foreign borrowings in recent years, by reducing the share of foreign borrowings in its overall borrowing mix and a bigger share for local borrowings to reduce forex (foreign exchange) risks entailed in foreign debt,” Mr. Ricafort said.

This year, the NG plans to borrow P2.57 trillion, of which 75% will com  e from local sources and 25% from external sources.

For the coming months, Mr. Ricafort said that easing inflation and expectations of further rate cuts could “reduce interest payments on foreign debts and also reduce overall debt servicing costs, going forward.”

The central bank expects inflation to average 3.1% this year, well within its 2-4% target. Headline inflation eased to 1.9% in September, its slowest in over four years.

BSP Governor Eli M. Remolona, Jr. has also signaled further monetary easing, citing the possibility of another 25-basis-point (bp) rate cut at the Monetary Board’s December meeting.

This after the central bank cut rates for a second straight meeting last week, delivering a 25-bp cut and bringing the key rate to 6% from 6.25%.

The BSP gathers data on external debt through the reports submitted by borrowers and banks, as well as reports from major foreign creditors. — Luisa Maria Jacinta C. Jocson