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April 12, 2024

Philippine debt burden swells amid prepayment push

The Philippines faced a substantial spike in its external debt servicing burden last year, with payments ballooning by 73.9% to $14.752 billion.

This surge can be attributed to concerted efforts from both the public and private sectors to accelerate prepayments on foreign loans.

By the end of 2023, the country’s outstanding external debt reached $125.39 billion, marking a 12.7% increase from the previous year.

Despite the uptick in debt levels, the external debt ratio to GDP remained relatively manageable at 28.7%, compared to 27.5% in 2022.

Principal repayments saw a 67.2% surge to $7.7 billion, mainly driven by prepayments on fixed medium-to-long-term credits.

Meanwhile, interest payments jumped by 81.8% to $7.04 billion, reflecting higher interest rates on both fixed and revolving short-term credits.

The debt service ratio (DSR), measuring the capacity to make debt payments using export earnings, rose to 10.2% last year from 6.3% in 2022. This was primarily due to higher principal and interest payments driven by rising global interest rates.

Public sector external debt rose by 5.6% to $77.8 billion, representing 62.1% of the total external debt, while private sector debt increased by 5.4% to $47.6 billion, constituting the remaining 37.9%.

Overall, the surge in prepayments has intensified the challenge of debt servicing for the Philippines, requiring astute financial management to navigate these increased obligations effectively.