Government debt payments decline in August

The national government’s (NG) debt service payments slipped year on year in August as principal payments for domestic borrowings dropped, the Bureau of the Treasury (BTr) reported.

The latest data from the BTr showed that debt payments declined by 1.49% to PHP 186.22 billion in August from PHP 189.03 billion in the same month in 2023.

Debt service refers to payments made by the government on domestic and foreign borrowings.

Principal payments accounted for the bulk or 71.66% of debt payments for the month.

In August, amortization payments fell by 8.83% to PHP 133.44 billion from PHP 146.36 billion in the same month in 2023.

Broken down, principal payments on domestic debt dropped by 13.83% to PHP 122.03 billion in August from PHP 141.62 billion a year ago.

Principal payments to foreign creditors surged by 140.52% to PHP 11.4 billion in August from PHP 4.74 billion last year.

On the other hand, interest payments jumped by 23.7% to PHP 52.78 billion in August from PHP 42.67 billion a year ago.

Domestic interest payments went up by 33.26% to PHP 39.36 billion in August from PHP 29.54 billion last year. Interest paid to foreign creditors also inched up by 2.19% to PHP 13.42 billion in August from PHP 13.13 billion last year.

In August, interest payments on local borrowings comprised of PHP 18.7 billion in fixed-rate Treasury bonds, PHP 16.87 billion in retail Treasury bonds, PHP 3.74 billion in Treasury bills (T-bills), and others (PHP 50 million).

“The decline in overall debt payments in August is mainly due to the drop in principal payments, likely from the government’s strategic debt management efforts,” Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said in a Viber message.

“The increase in interest payments is due to higher interest rates on new and existing debt,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the lower debt payments were largely due to the smaller amount of maturing National Government debt as well as the stronger peso.

The peso strengthened by PHP 2.254 to PHP 56.111 against the dollar at end-August from its PHP 58.365 finish at end-July.

Mr. Ricafort said the central bank’s 25-basis-point (bps) rate cut in August may have also reduced annual debt payments.

The Bangko Sentral ng Pilipinas (BSP) cut its policy rate for the first time in nearly four years, bringing the key rate to 6.25% from an over 17-year high of 6.5%.

EIGHT-MONTH PERIOD

In the January-August period, the NG’s debt service bill jumped by 33.49% to PHP 1.55 trillion from PHP 1.16 trillion in the comparable year-ago period.

Amortization payments accounted for 67.14% of the eight-month tally.

Principal payments rose by 34.7% to PHP 1.04 trillion in the first eight months from PHP 772.64 billion last year. Amortization payments on domestic debt reached PHP 879.65 billion, while payments on external debt stood at PHP 161.09 billion.

Meanwhile, interest payments rose by 31.07% to P509.44 billion in the first eight months from P388.68 billion a year prior.

Interest paid on domestic debt amounted to PHP 362.72 billion, while those on external debt stood at PHP 146.72 billion.

“Looking ahead, debt payments will be influenced by interest rates and the government’s borrowing strategy. High interest rates may keep pressure on interest payments, but debt management efforts could help mitigate costs,” Mr. Ravelas said.

BSP Governor Eli M. Remolona, Jr. recently said the Monetary Board could reduce interest rates by 50 bps more this year by delivering two more 25-bps cuts at its Oct. 16 and Dec. 19 meetings.

“The debt servicing bill for the coming months would largely be a function of maturing NG debt/government securities as well as the future trend of the budget deficits that need to be financed partly through NG borrowings,” Mr. Ricafort said in a Viber message.

As of end-August, the budget gap narrowed by 4.86% to PHP 697 billion from PHP 732.5 billion last year, according to Treasury data.

 This year’s borrowing plan is set at PHP 2.57 trillion, with PHP 1.92 trillion to be borrowed from local sources and PHP 646.08 billion from overseas. – Beatriz Marie D. Cruz, Reporter