Debt service bill falls by 61% in September

The National Government’s (NG) debt service bill declined year on year in September as amortization payments for domestic borrowings slipped, the Bureau of the Treasury (BTr) reported.

The latest data from BTr showed that the debt service bill slumped by 60.83% to PHP 93.61 billion in September from PHP 239 billion in the same month last year.

Month on month, the debt service bill also fell by 49.73% from PHP 186.22 billion in August.

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

The bulk or 78.89% of debt payments in September were made up of interest payments, BTr data showed.

Interest payments stood at PHP 73.85 billion in September, up by 3.26% from PHP 71.45 billion a year ago.

Domestic interest payments inched down by 0.88% to PHP 55.41 billion in September from PHP 55.89 billion last year.

Interest paid to foreign creditors increased by 15.67% to PHP 18.45 billion in September from P15.56 billion in the same month in 2023.

Meanwhile, amortization payments plunged by 88.21% to PHP 19.76 billion in September from PHP 167.55 in the same month in 2023.

Broken down, principal payments on domestic debt slumped by 99.94% to PHP 87 million in September from PHP 148.88 billion a year ago.

Principal payments on external debt increased by 5.1% to PHP 19.67 billion in September from PHP 18.67 billion in the same month a year ago.

Broken down, domestic interest payments were composed of PHP 32.99 billion in fixed-rate Treasury bonds, PHP 19.18 billion in retail Treasury bonds, PHP 3.2 billion in Treasury bills (T-bills), and others (PHP 26 million).

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said lower NG debt maturities in September reduced the debt servicing bill, especially on principal payments.

“However, there would be a relatively larger maturing National Government local Treasury bonds in October 2024, thereby would lead to some pickup on the debt servicing bill of the NG,” Mr. Ricafort told BusinessWorld in a Viber Message over the weekend.

He added that “seasonally lower” maturing government securities and issuances could drag the NG debt servicing cost from November to December.

“The still relatively weaker peso exchange rate vs. the US dollar would lead to a higher peso equivalent of the NG’s debt servicing of its external/foreign debts, both principal and interest payments,” Mr. Ricafort said.

The peso closed at PHP 56.03 per dollar at end-September, strengthening from the PHP 56.111 finish at end-August.

For the coming months, more rate cuts by the central bank will reduce government borrowing expenses and lessen future debt service payments, Ateneo School of Government Dean Philip Arnold P. Tuaño said.

“The only question is how quickly the Bangko Sentral ng Pilipinas (BSP) cut interest rates vis-a-vis the planned cuts also of the US Federal Reserve Bank which will then affect the mix of domestic and foreign borrowing by the Bureau of Treasury,” Mr. Tuaño told BusinessWorld in an e-mailed statement.

Since beginning its easing cycle in August, the Monetary Board has cut rates by 50 basis points (bps), bringing the central bank’s key rate to 6%.

BSP Governor Eli M. Remolona, Jr. has signaled a possible 25-bp rate cut in December, which would bring the benchmark rate to 5.75% by the end of 2024.

For the first nine months of the year, the NG debt service bill stood at PHP 1.64 trillion, 14.81% up from PHP 1.4 trillion in the same period last year.

Amortization payments accounted for 64.52% of the nine-month tally.

Principal payments jumped by 11.34% to PHP 1.06 trillion in the first nine months from PHP 940.19 billion in the same period last year.

Amortization payments on domestic debt went up 3.15% to PHP 879.74 billion, while external payments rose by 51.21% to PHP 180.76 billion.

Meanwhile, interest payments increased by 21.12% to PHP 583.29 billion in the first nine months from PHP 460.12 billion a year ago.

Interest payments on domestic debt amounted to PHP 418.13 billion while those on external debt stood at PHP 165.17 billion.

The NG’s debt stock rose to a fresh high of PHP 15.89 trillion as of end-September, but the BTr said this level is still “manageable.”