July debt service bill jumps by 26%

The National Government’s (NG) debt payments jumped in July as interest payments on local borrowings increased, the Bureau of the Treasury (BTr) said.

The latest BTr data showed that the debt service bill went up 26.13% to PHP 81.17 billion in July from PHP 64.36 billion in the same month a year ago.

Month on month, debt payments also rose by 22.85% from PHP 66.08 billion in June.

The debt service bill refers to payments made by the government on its domestic and foreign borrowings.

Interest payments comprised 97.85% of the debt service bill for the month.

In July, interest payments increased by 24.99% to PHP 79.43 billion from PHP 63.55 billion in the same month in 2023.

Broken down, interest paid on domestic obligations soared by 41.84% to PHP 55.32 billion in July from PHP 39 billion last year.

This consisted of PHP 47.03 billion for fixed-rate Treasury bonds, PHP 3.58 billion for retail Treasury bonds, PHP 2.9 billion for Treasury bills (T-bills), and others (PHP 1.81 billion).

Interest payments made on external debt dipped by 1.78% to PHP 24.11 billion in July from PHP 24.55 billion last year.

On the other hand, principal payments more than doubled to PHP 1.74 billion in July from PHP 808 million a year earlier.

Principal payments on external debt surged by 113.58% to PHP 1.56 billion in July from PHP 729 million in the same month last year.

Amortization on domestic debt soared by 134.18% to PHP 185 million in July from PHP 79 million a year prior.

In the first seven months of the year, NG debt payments jumped 40.28% to PHP 1.36 trillion from PHP 972.29 billion a year ago.

Principal payments accounted for 66.52% of debt servicing as of end-July.

Amortization payments jumped by 44.87% to PHP 907.3 billion during the January-to-July period from PHP 626.28 billion a year ago. Principal payments on domestic debt stood at PHP 757.62 billion, while amortization payments on external debt amounted to PHP 149.68 billion.

In the January-July period, interest payments rose by 31.98% to PHP 456.66 billion from PHP 346 billion last year.

Domestic interest payments as of end-July amounted to PHP 323.36 billion, while external interest payments stood at PHP 133.3 billion.

During the period, interest payments on local borrowings comprised PHP 217.53 billion for fixed-rate Treasury bonds, PHP 78.24 billion for retail Treasury bonds, PHP 18.68 billion for T-bills, and others (PHP 8.91 billion).

“Rising interest rates and maturing obligations are driving up the government’s debt service bill. However, strong revenue collection and external financing are helping to manage the burden,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

Elevated interest rates here and abroad continued to drive up interest payments on debt, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“The stronger peso exchange rate recently could reduce the peso equivalent of foreign debt principal and interest payments,” Mr. Ricafort said in a Viber message.

The local unit closed at PHP 55.995 on Friday, 20.5 centavos stronger than its PHP 56.2 finish on Thursday.

A potential rate cut by the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve could help reduce the NG’s interest payments, Mr. Ricafort added.

At its Aug. 15 meeting, the Monetary Board cut the policy rate by 25 basis points (bps) to 6.25% from the over 17-year high of 6.5% previously.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board may cut interest rates by another 25 bps in the fourth quarter. Only two meetings are left this year — Oct. 17 and Dec. 19.

For its part, the Fed is widely expected to begin its easing cycle this week.

The National Government (NG) plans to borrow PHP 630 billion from the domestic market in the third quarter. Broken down, it is looking to raise PHP 260 billion from T-bills and PHP 370 billion via T-bonds in the period.

The NG’s debt stock climbed to a record-high PHP 15.69 trillion as of end-July from PHP 15.48 trillion as of end-June.

This year’s debt service program is set at PHP 2.03 trillion, according to the latest Budget of Expenditures and Sources of Financing.