Foreign debt payments hit $8.25 billion in 7 months

MANILA, Philippines — The Philippines spent more on servicing foreign debt during the seven-month period ending July, driven by a double-digit increase in principal repayments, data from the Bangko Sentral ng Pilipinas showed.

The country’s external debt service burden (DSB), or principal and interest payments on foreign obligations, rose by 5.2 percent to $8.25 billion from January to July compared to $7.84 billion in the same period last year.

Principal payments increased by 12.9 percent to $3.58 billion from $3.17 billion a year earlier. Interest payments were virtually unchanged at $4.67 billion.

The DSB covers principal and interest payments on fixed medium- and long-term foreign loans, including International Monetary Fund credits and new money facilities.

It also includes interest payments on fixed and revolving short-term liabilities of banks and non-banks, but excludes advance payments on loans due in future years as well as principal payments on short-term liabilities.

Higher debt servicing means more resources are needed to meet obligations to foreign creditors. Still, the BSP data showed that the burden remained manageable relative to the country’s foreign exchange earnings.

The DSB was equivalent to 20.3 percent of export shipments from January to July, lower than the 21 percent recorded in the same period last year.

Debt payments accounted for 8.7 percent of exports of goods and receipts from services and primary income, unchanged from a year earlier. Primary income includes investment earnings and overseas Filipino cash remittances coursed through banks.

RCBC chief economist Michael Ricafort said the higher debt service burden partly reflected the wider budget deficits and increased borrowing accumulated since the pandemic, with some of these obligations now reaching maturity.

He said elevated global and domestic interest rates in recent years have also kept borrowing costs high. Higher oil prices and inflation this year pushed bond yields and longer-term financing costs to multi-year highs, adding to the cost of servicing some foreign loans.

Still, Ricafort said the government generally limits its reliance on foreign borrowing to reduce exposure to foreign exchange losses.

External loans are also typically structured with medium- to long-term maturities to avoid having large amounts of debt fall due at the same time, while domestic borrowing continues to account for a bigger share of the government’s funding mix, he said.

The BSP data showed outstanding external debt stood at $154.93 billion as of end-June, up from $148.87 billion a year earlier. Foreign debt was equivalent to 31.6 percent of gross domestic product, higher than 31.2 percent a year ago.