Philippines’ foreign debt service bill climbs at end-May

By Katherine K. Chan, Reporter

THE Philippines’ debt service on foreign loans continued to rise as the government made higher principal payments as of May, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Based on data released by the central bank, the country’s external debt service burden amounted to $6.208 billion in the five-month period, up 4.78% from $5.925 billion a year ago.

Broken down, principal payments rose by 13.55% year on year to $3.008 billion in the January-to-May period from $2.649 billion previously.

However, interest payments slipped by 2.29% to $3.2 billion at end-May from $3.275 billion a year earlier.

SM Investments Corp. Vice-President and Group Economist Robert Dan J. Roces noted that the Philippines’ higher foreign debt service burden reflected the increase in maturing debt rather than financial stress.

“The increase in debt service largely reflects scheduled repayments, not financial stress,” he said in a Viber message. “More debt matured during the period, pushing principal payments higher, while interest payments declined.”

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the end-May external debt service bill points to “responsible debt repayment rather than financial stress.”

The debt service bill represents principal and interest payments after rescheduling, according to the BSP.

This includes principal and interest payments on fixed medium- and long-term credits, including International Monetary Fund credits, loans covered by the Paris Club and commercial bank rescheduling, and New Money Facilities.

It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, the debt service data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.

Still, the country’s reserves level and sustained foreign currency inflows will allow it to finance its external obligations, Mr. Roces noted.

“With ample reserves and steady foreign currency inflows, the country remains well-positioned to meet its external obligations,” he said.

While the BSP said its dollar reserves remain adequate, the latest data showed its gross international reserves (GIR) fell year on year for a fifth straight month to its lowest level in nearly two years.

As of end-July, the country’s GIR stood at $103.317 billion, down by around 2% from the $105.418 billion it held a year ago and by 1.36% from $104.745 billion at end-June.

The country’s dollar inflows are largely sourced from overseas Filipino workers’ remittances, revenues from business process outsourcing (BPO), and its export receipts.

“As long as economic growth, remittances, BPO revenues, and foreign exchange reserves remain supportive, the country’s external debt position remains broadly manageable,” Mr. Ravelas noted.

“The key challenge is ensuring that the economy continues to generate sufficient dollar earnings to comfortably meet future debt obligations while preserving fiscal flexibility,” he added.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the budget deficit, global and local interest rates, foreign debt maturities, and the peso’s performance against the dollar will determine the country’s external debt service bill in the months ahead.

“For the coming months, foreign debt servicing costs would be a function of future budget deficits, interest rate hikes locally and in the US or globally, foreign debt maturities especially increased borrowings since the COVID-19 pandemic; US dollar-peso exchange rate since foreign debts are partly paid in pesos…,” he said in a Viber message.

The US Federal Reserve’s benchmark rate has remained at the 3.5%-3.75% range for five straight meetings but is expected to rise later this year.

The BSP hiked its key policy rate by a third consecutive 25 basis points (bps) to 5% last month.

BSP Governor Eli M. Remolona, Jr. has said he is open to taking further monetary policy action as necessary to bring inflation closer to their 3% target, with the headline clip at 5% as of July and projections that it will continue to breach their goal until 2028.

Meanwhile, the external debt service bill as a share of gross domestic product (GDP) stood at 3.4% in the first quarter, higher than the 2.9% in the prior year. There was no available data for end-May.

However, the Philippines’ outstanding external debt edged up by 0.42% to $147.351 billion as of end-March from $146.737 billion in the same period last year, according to the latest BSP data.

Quarter on quarter, the debt stock went down by 0.2% from $147.651 billion.

Of the total, $95.655 billion is public sector debt, while $51.696 billion came from the private sector.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

The central bank gathers data on external debt through reports submitted by borrowers, banks, and major foreign creditors.

For 2026, the National Government plans to borrow a total of P2.682 trillion, up 3.15% from the P2.6-trillion borrowing program last year. This accounts for 5.1% of the country’s GDP.

It seeks to source 77% or about P2.065 trillion from local lenders and the remaining 23% or P616.86 billion from foreign creditors. It observed an 81:19 borrowing mix in 2025 in favor of local sources.