Government’s debt servicing soars to PHP 217B in October

The national government’s (NG) debt service bill sharply rose in October as amortization payments for domestic borrowings went up, the Bureau of the Treasury (BTr) reported.

The latest data from BTr showed that the debt service bill stood at PHP 216.85 billion in October, surging by 179% from PHP 77.76 billion in the same month last year.

Month on month, the debt service bill also jumped by 131.65% from PHP 93.61 billion in September.

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

The bulk or 74.46% of debt payments in October were made up of amortization payments, BTr data showed.

Amortization payments soared by 759.89% to PHP 161.46 billion in October from PHP 18.78 billion in the same month last year.

Broken down, principal payments on domestic debt sharply increased to PHP 120 billion in October from PHP 1.94 billion in 2023.

Principal payments on external debt increased by 146.29% to PHP 41.46 billion in October from PHP 16.84 billion in the same month a year ago.

On the other hand, interest payments fell by 6% to PHP 55.39 billion in October from PHP 58.98 billion in the same month last year.

Domestic interest payments slid by 10.82% to PHP 35.33 billion in October from PHP 39.62 billion last year.

Interest paid to foreign creditors increased by 3.56% to PHP 20.05 billion in October from PHP 19.36 billion in the same month in 2023.

Broken down, domestic interest payments composed of PHP 27.27 billion in fixed-rate Treasury bonds, PHP 3.58 billion in retail Treasury bonds, PHP 2.77 billion in Treasury bills (T-bills) and others (PHP 1.73 billion).

“The increase in amortization could have been caused by several factors. First, an increase in government debts maturing that month,” Ateneo School of Government Dean Philip Arnold “Randy” P. Tuaño told BusinessWorld in an e-mail.

Mr. Tuaño said a significant portion of debts matured in October, “it would have required the government to repay the principal amounts to creditors.”

He also attributed the increase in amortization to the lower interest rate environment in October as may have caused the government to pre-pay some of the higher interest rate debts.

The Bangko Sentral ng Pilipinas began its easing cycle in August amid slower inflation. It cut rates by 25 basis points (bps) in August, and by another 25 bps in October, bringing the benchmark rate to 6%.

The Monetary Board is expected to reduce the target reverse repurchase (RRP) rate by 25 bps at its meeting on Dec. 19, according to 13 out of 16 analysts said in a BusinessWorld poll last week. If realized, this would bring the benchmark rate to 5.75% from the current 6%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the sharp year-on-year decline in debt servicing cost was due to the “bigger matured government securities.”

For the remaining months, Mr. Ricafort said there would be “seasonal reduction” in matured government securities due to “reduced Treasury bill and Treasury bond auctions in view of the holidays mode especially in the latter part of December, as consistently seen for many years.”

For the first 10 months of the year, the NG debt service bill stood at PHP 1.86 trillion, up by 25.88% from PHP 1.48 trillion in the same period last year.

Amortization payments accounted for 65.67% of the 10-month total. It jumped by 27.42% to PHP 1.22 trillion as of end-October from PHP 958.96 billion a year ago.

Amortization payments on domestic debt rose by 17.07% to PHP 999.74 billion, while external payments surged by 111.6% to PHP 222.22 billion.

On the other hand, interest payments increased by 23.03% to PHP 638.68 billion in the first 10 months from PHP 519.11 billion a year ago.

Interest payments on domestic debt amounted to PHP 453.46 billion, while those on external debt stood at PHP 185.22 billion.

As of end-October, domestic interest payments included PHP 296.49 billion in fixed-rate Treasury bonds, PHP 117.87 billion in retail Treasury bonds, PHP 28.4 billion in T-bills and others (PHP 10.71 billion).

The NG’s debt stock rose to a fresh high of P16.02 trillion as of end-October. – Aubrey Rose A. Inosante, Reporter