Sep 122016

MANILA, Philippines – Debt prepayments by Philippine borrowers, including the national government, declined by about 16 percent in the first half, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data released by the central bank showed total prepayments on medium and long-term foreign loans in the country amounted to $1.54 billion in the first half of the year, $293 million lower than the $1.83 billion recorded in the same period last year.

Prepayments by the national government on its foreign obligations fell 14.2 percent to $1.13 billion from January to June this year versus the $1.32 billion prepaid in the same period last year.

On the other hand, prepayments made by private companies dropped 20.3 percent to $408.5 million from $512.5 million.

BSP Deputy Governor Diwa Guinigundo said the national government and private companies are running out of foreign obligations to prepay.

He pointed out the national government and private corporations started prepaying their foreign debt after the Philippines settled its obligations to the International Monetary Fund (IMF) in 2005.

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He explained both the frontloading of debt payments is a continuing process for the national government and the private sector.

According to Guinigundo, the government and private corporations are reviewing contracts that allow for prepayments.

“If there are prepayment provisions, there are prepayment charges that have to be settled. So there will be no savings in terms of prepaying,” Guinigundo said.

Both government and private corporations, he said, are carefully balancing the lower interest savings and the prepayment charges that have to be paid in the early payment of their foreign obligations.

“On that basis, the stock of debt you need to prepay will diminish overtime,” he said.

The country’s outstanding external debt stood at $77.6 billion in end-March this year or 3.1 percent higher than the $75.3 billion booked in end-March last year. About 63 percent of the country’s external debt is denominated in US dollars while 12.4 percent are in Japanese yen.

About 12.5 percent of the external debt are US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank, while 17 percent are denominated in 18 other currencies including the Philippine peso with 8.1 percent, the special drawing rights of the IMF with 2.2 percent, and the Euro with 1.2 percent.

Data also showed the external debt ratio or total outstanding debt expressed as a percentage of annual aggregate output was unchanged at 26.5 percent of the country’s gross domestic product (GDP). The debt service ratio continued to improve to 5.9 percent in end-March, but remained well below the international benchmark of 20 to 25 percent.

The public sector debt amounting to $37.9 billion or 50.1 of the total external debt has an average tenor of 22.8 years due to the developmental nature of its borrowings.

On the other hand, private sector loans amounting to $38.7 billion or 49.9 percent of the total external debt had shorter average tenor of eight years coinciding with the payback period of projects financed by these borrowings.

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