Philippines Foreign Debt Service Bill Reaches $7.298B in H1

The Philippines' foreign debt service bill rose 3.02% year on year to $7.298 billion in the first half, driven by increased principal payments, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP). Debt service payments in June also saw a significant increase of 17.56% compared to May. The debt service burden encompasses principal and interest payments after rescheduling, covering fixed medium- and long-term credits, including those from the International Monetary Fund (IMF), loans under Paris Club agreements, commercial bank reschedulings, and New Money Facilities. It also includes interest payments on short-term liabilities of banks and non-banks. During the first half, principal payments increased by 8.97% to $3.377 billion, while interest payments decreased by 1.63% to $3.92 billion. This brought the external debt service burden as a share of gross domestic product (GDP) to 3% in the second quarter, unchanged from the previous year but lower than the 3.4% recorded in the first quarter. However, outstanding external debt reached a new record high of $154.932 billion by the end of June, a 5.14% increase quarter on quarter. Public-sector debt rose by 3.01% to $98.535 billion, while private-sector obligations climbed 9.09% to $56.397 billion. Michael L. Ricafort, Chief Economist at Rizal Commercial Banking Corp., attributed the rise in external debt to the National Government's (NG) increased borrowing to finance its widening budget deficit. Data from the Bureau of the Treasury shows the NG's budget deficit widened by 9.39% year on year to P264.3 billion in June, and by a substantial 461.73% to P106.3 billion in July, bringing the year-to-date fiscal gap to P893.1 billion. The external debt stock in the first half was equivalent to 31.6% of GDP, up from 31.2% a year earlier. Ricafort considers this ratio acceptable, provided it remains comparable to countries with similar credit ratings. The BSP's data covers all borrowings by Philippine residents from non-resident creditors, regardless of sector, maturity, creditor type, debt instruments, or currency denomination. The central bank gathers this data through reports submitted by borrowers, banks, and major foreign creditors. Ricafort anticipates that future external debt levels will depend on the NG's budget deficit and borrowing requirements. He also noted that the NG might prioritize domestic borrowing to mitigate foreign exchange risks associated with external debt. Meanwhile, the Philippine peso has weakened against the US dollar, reaching multiple new lows this year, breaching the P62 level for the first time at the end of August. This trend is influenced by lingering global uncertainty and the US Federal Reserve's monetary policy outlook. Looking ahead, the NG plans to borrow P2.682 trillion in 2026, a 3.15% increase from the previous year's borrowing budget of P2.6 trillion, representing 5.1% of GDP. The government aims to source 77% (approximately P2.065 trillion) from domestic lenders, with the remainder from foreign creditors. This reflects a continued emphasis on domestic financing, following an 81:19 local-foreign borrowing mix in 2025. Information Source: BusinessWorld Economy