Gov’t debt burden 40% up on high interest rates

The national government’s debt service bill went up in May as high interest rates pushed up borrowing cost, data from the Bureau of the Treasury showed.

The BTr showed that the government paid P68.9 billion of its obligations in May, increasing by 40.6 percent from the P49.04 billion it had settled last year.

Debt service refers to the money required to cover the payment of interest and principal on a loan for a period.

For the first four months, payment for liabilities amounted to P1.22 trillion, larger by 48.5 percent than P819.52 billion in the same period a year ago. This also accounted for 63.6 percent of the government’s P1.91-trillion debt service plan for this year.

The bulk or 88.6 percent of the debt service bill for the month was composed of interest payments.Interest payments in the first five months climbed by 40.1 percent to P321.59 billion from P229.57 billion a year ago. Broken down, interest paid on domestic liabilities reached P231.38 billion while interest payments for external debt stood at P90.21 billion.

Meanwhile, amortization payments, which made up 11.4 percent of the total amount, jumped by 51.7 percent to P895.13 billion in the January-to-May period from P589.95 billion last year. Payments on domestic debt stood at P754.86 billion, while those on external debt amounted to P140.27 billion.

The higher debt servicing in May was primarily driven by higher interest rates that increased borrowing costs since 2022 amid accelerating inflation.

The Monetary Board kept the key rate unchanged at a 17-year high of 6.5 percent during its latest policy meeting in the hopes that inflation will ease in the coming months following the government’s move of reducing import tariffs on agricultural products, including rice.

Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. also hinted that central bank is more likely to cut policy rate by a total of 50 basis points (bps) this year. The first 25-bp cut is expected as early as August, ahead of the US Federal Reserve.

“This could also reflect the wider budget deficit in recent months attributed to the said factors. There could also be some payment of some multilateral debt foreign debts, as well as some maturity of some local government securities,” said Michael Ricafort, chief economist at Rizal Commercial Banking Corp.

The government’s budget deficit widened to P404.8 billion in the first five months mainly due to higher public spending, thus resulting in a higher borrowing plan. For the third quarter, it plans to borrow P630 billion to fund its deficit.

The government borrows from local and external sources to help fund a budget deficit, which is capped at P1.48 trillion or 5.6 percent of gross domestic product this year.