The country’s external debt service burden inched higher in the first five months of 2025 from a year earlier, reflecting both prepayments of foreign loans and higher borrowing costs.
Bangko Sentral ng Pilipinas (BSP) data showed that debt service payments—which cover both principal and interest—reached $5.869 billion in January to May, a slight increase of 0.51 percent from $5.839 billion in the corresponding five-month period in 2024.
The uptick was largely driven by a 2.68 percent rise in principal payments, which climbed to $2.645 billion from $2.576 billion.
Interest expenses, however, continued to ease, slipping 1.22 percent to $3.224 billion from $3.264 billion.
Despite the higher payments, the BSP stressed that the burden remains manageable relative to external receipts.
As of end-May, debt service accounted for 23 percent of export shipments and 9.3 percent of exports of goods, services, and primary income, it said.
Budget deficits reflected
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the uptick in external debt and debt servicing may be reflecting “the wider budget deficits in recent years that necessitated more external borrowings, on top of domestic borrowings, to finance the gap.”
He said foreign debt has also served as a way to diversify the country’s funding sources and to ensure liquidity in global bond markets.
“The wider budget deficits in peso terms, despite being lower as a share of GDP (gross domestic product), have still led to more foreign borrowing even up to 2026,” Ricafort said. “This could lead to further increases in external debt levels.”
Economists often look to the debt service burden as a key measure of debt sustainability, gauging the public and private sectors’ ability to meet foreign obligations without relief, extraordinary aid, or default.
Ricafort added that the government has deliberately reduced the share of foreign borrowings in favor of a larger domestic mix in order to better manage foreign exchange risks.
Equivalent to 31% of GDP
The country’s total outstanding external debt stood at $146.737 billion as of end-March, up 6.62 percent from $137.628 billion a year earlier. That figure was equivalent to 31.5 percent of GDP for that period, higher than the 29.8 percent ratio recorded in 2024.
Even so, the central bank said the latest level “still reflects the country’s ability to repay its external obligations.”
Ricafort echoed that view, stressing the importance of securing long-term maturities to avoid bunching of payments and to ensure that the country’s gross international reserves—now at $105.4 billion—remain sufficient to cover obligations.
“It is important that foreign borrowings are at the longest tenors possible,” he said. “That way the country avoids bunching of short-term obligations, and there is always enough reserves to meet external debt servicing in a sustainable way.”
Crucial to credit ratings
The debt service ratio, another gauge of repayment capacity, eased to 8.4 percent as of end-March, from 9 percent a year earlier.
Ricafort said keeping debt sustainable is also crucial to maintaining the Philippines’ investment-grade credit ratings of one to three notches above minimum, and to keeping the debt-to-GDP ratio near or below the 60 percent international threshold in the coming years.
