Debt servicing balloons to PHP 819 billion

THE NATIONAL Government’s (NG) debt service bill ballooned to PHP 819.526 billion as of end-May, data from the Bureau of the Treasury (BTr) showed.

The debt service bill nearly doubled to P819.526 billion in the January-to-May period from PHP 414.069 billion in the same period a year ago.

In the first five months of the year, almost three-fourths or 71.99% of the debt service bill went to amortization.

Principal payments during the period tripled to PHP 589.952 billion as of end-May from PHP 193.606 billion in the previous year.

Of this, payments for domestic debt surged by 248.6% to PHP 533.44 billion from PHP 153.015 billion.

Amortization for foreign debt rose by 39% to PHP 56.512 billion from PHP 40.591 billion in the same period a year ago.

Meanwhile, total interest payments during the January-to-May period inched up by 4.1% to PHP 229.574 billion from PHP 220.463 billion a year ago.

Interest on local debt declined by 11.5% to PHP 152.604 billion as of end-May from PHP 172.358 billion a year ago.

Broken down, this consisted of PHP 96.954 billion in fixed-rate Treasury bonds, PHP 49.111 billion in retail Treasury bonds, and PHP 5.159 billion in Treasury bills.

Interest paid on foreign debt soared by 60% to PHP 76.97 billion during the five-month period from PHP 48.105 billion a year ago.

In May alone, the debt service bill stood at PHP 49.047 billion, lower by 14.6% than PHP 57.444 billion in the same month in 2022.

Month on month, debt payments fell by 76% from PHP 204.763 billion in April.

Of the total debt service bill in May, the bulk (84.3%) was for interest payments.

Interest payments increased by 22.2% to PHP 41.344 billion.

Of the total, PHP 29.529 billion went to domestic creditors, down by 2.3% from PHP 28.871 billion a year earlier.

This consisted of PHP 19.88 billion in fixed-rate Treasury bonds, PHP 8.883 billion in retail Treasury bonds, and PHP 756 million in Treasury bills.

Interest paid to external creditors more than doubled to PHP 11.815 billion from PHP 4.96 billion a year ago.

Meanwhile, amortization payments declined by 67.4% in May to PHP 7.703 billion from PHP 23.613 billion in the same month in 2022.

Domestic debt payments stood at PHP 2.656 billion in May. No payments were made for domestic debt a year ago.

Amortization on foreign obligations dropped by 78.6% to PHP 5.047 billion in May from PHP 23.613 billion last year.

Analysts said the spike in the debt service bill in the five-month period was likely due to higher interest rates.

“Higher debt service payments in 2023 vs 2022 year-to-date likely due to the stark increase in interest rates throughout the period. We’ve seen several Bangko Sentral ng Pilipinas (BSP) policy rate hikes on top of bond yields reacting to global bond trends as well,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

The Monetary Board has raised borrowing costs by 425 basis points (bps) from May 2022 to March 2023, bringing its key interest rate to a near 16-year high of 6.25%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said higher prices added to the government’s spending and budget deficit, as well as debt servicing.

“The higher debt servicing bill since the start of 2023 may have to do with higher debt maturities earlier this year, as well as higher interest rates, financing costs, and weaker peso exchange rate since last year,” Mr. Ricafort said in a Viber message.

Headline inflation eased to 6.1% in May from 6.6% in April. However, it was the 14^th straight month that inflation breached the central bank’s 2-4% target.

Inflation averaged 7.5% in the first five months. The BSP expects inflation to settle at 5.4% this year.

“For the coming months, an easing trend in inflation and eventually interest rates, thereby could lead to lower debt servicing, going forward,” Mr. Ricafort added.

The government’s debt service program this year is set at PHP 1.6 trillion, 23.3% higher than the PHP 1.298-trillion program in 2022.

As of end-May, the NG’s total outstanding debt hit a record PHP 14.1 trillion, 1.3% up from the previous month due to the net issuance of domestic and foreign debt and the peso depreciation against the US dollar. — Luisa Maria Jacinta C. Jocson