DEBT SERVICE on foreign loans fell 3.43% year on year in the first eight months as both principal and interest payments declined, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP).
The debt service bill came in at $8.427 billion at the end of August, it said, with principal payments falling 7.89% to $3.212 billion. Interest payments fell 0.44% to $5.215 billion.
August was the third straight month that the debt service bill on foreign loans came in lower.
“This is largely a function of (the) reduced share of foreign borrowings to the total borrowing mix in recent years,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said via Viber.
However, he added that a wider budget deficit could still increase the National Government’s (NG) local and foreign debt, but noted that risk of foreign exchange losses could prevent external borrowing from ballooning further.
The fiscal deficit was P248.1 billion in September, widening 9.22% from a year earlier and nearly triple the P84.8-billion deficit in August.
For this year, the NG plans to source 81% or P2.11 trillion of its P2.6-trillion financing from local lenders this year. It previously observed a 75:25 borrowing mix in 2024 in favor of domestic creditors.
The debt service bill represents principal and interest payments after rescheduling, according to the BSP.
This includes principal and interest payments on fixed medium- and long-term credits, including International Monetary Fund credits, loans covered by the Paris Club and commercial bank rescheduling, and New Money Facilities. It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.
However, the debt service data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.
As of June, the debt service burden as a share of gross domestic product (GDP) stood at 2.9%, slightly lower than 3.2% seen a year ago.
Based on latest central bank data, the country’s outstanding external debt reached $148.873 billion in the first half, with $94.801 billion coming from the public sector and $54.072 billion from the private sector.
This brought the external debt-to-GDP ratio to 31.2% at end-June, up from the 28.9% recorded a year earlier.
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.
The central bank gathers data on external debt through reports submitted by borrowers, banks, and major foreign creditors.
Mr. Ricafort said the NG could narrow its budget deficit and reduce its need to borrow more from local and foreign lenders if it implements genuine anti-corruption measures in the face of the corruption scandal that has beset flood control projects.
“If the anti-corruption reforms are taken seriously, this would lead to more disciplined government spending in terms of reduced leakage, thereby would lead to narrower budget deficits and reduced need for additional NG borrowing, both local and foreign,” he said.
He also noted that Federal Reserve rate action could help reduce Philippine interest payments.
Last month, the Federal Reserve cut interest rates by 25 basis points (bps) for a second time in a row, bringing it to the 3.75-4% range. This brought its total cuts to 150 bps since September 2024. — Katherine K. Chan