The Philippine government has slightly curtailed its foreign borrowings in 2024, approving a total of just US$13.68 billion, a 5.56% decrease from the US$14.49 billion approved in 2023. (It can be recalled that in the third quarter of last year, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has greenlit a total of US$3.81 billion in foreign borrowings by the Philippine public sector.)
In the 4th quarter of 2024, according to the latest BSP media advisory, the government has approved six public sector medium-to long-term foreign borrowings. Twenty-one public sector foreign borrowings were also approved aggregating US$13.68 billion, consisting of two bond issuances (US$4.50 billion), 11 project loans (US$5.32 billion), and eight (8) program loans (US$3.86 billion).
The foreign borrowings in 2024 will be used to fund the following:
- General government needs worth US$4.50 billion (32.89%);
- Infrastructure projects, including transportation amounting to US$4.35 billion (31.79%);
- Economic development and sustainability initiatives valued at US$2.98 billion (21.79%);
- Education and healthcare worth US$1.36 billion (9.94%); and
- Rural development and maritime safety amounting to US$0.49 billion (3.59%)
Foreign borrowings amidst rising debt service costs
This move comes amidst a backdrop of rising debt service costs, with external debt payments nearly doubling to US$14.7 billion in 2023.
The decrease in approval of foreign borrowings in 2024 primarily stems from a reduction in program loans and project loans. Program loans declined from US$4.82 billion in 2023 to US$3.86 billion in 2024, while project loans decreased from US$5.67 billion to US$5.32 billion.
However, this downward trend was partially offset by an increase in bond issuances, which rose from US$4.00 billion in 2023 to US$4.50 billion in 2024.
In the fourth quarter of 2024, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) approved six public sector medium-to-long-term foreign borrowings amounting to US$3.21 billion, a slight decrease of 3.35% from the US$3.32 billion approved in the same period of 2023.
Funding priorities remain diversified
The approved borrowings for 2024 will be allocated across various key sectors. A significant portion, US$4.50 billion (32.89%), will be directed towards general financing requirements.
On the other hand, infrastructure projects (with a particular focus on transportation), will receive a substantial allocation of US$4.35 billion (31.79%).
Furthermore, US$2.98 billion (21.79%) will be utilized for vital economic recovery and development initiatives, including policy reforms, environmental protection, and climate resilience programs.
Education and healthcare projects and programs will receive US$1.36 billion (9.94%), while agrarian reform and maritime safety projects will be allocated US$0.49 billion (3.59%).
Rising debt service costs
The government’s decision to moderate foreign borrowing comes amidst a challenging economic landscape. In 2023, external debt payments surged by 73.9% to $14.7 billion, driven by a significant increase in both principal and interest payments.
This surge in debt service costs was largely attributed to the BSP’s aggressive interest rate hikes aimed at curbing inflation. The key policy rate currently stands at 6.5%, the highest in over 16 years.
External debt still remains manageable
Despite the rise in debt service costs and the increase in external debt to a record high of $125.4 billion by the end of 2023, the BSP maintains that the country’s external debt remains at prudent levels.
As a share of the economy, external debt slightly increased to 28.7% in the fourth quarter of 2023, from 28.1% in the third quarter.
The increase in the external debt level can be attributed to fresh liabilities incurred by both private and public sector borrowers. Notably, a non-bank firm secured a US$3 billion syndicated loan from offshore banks to finance capital expenditures and maturing obligations.
On the government’s end, the issuance of a $1 billion 5.5-year dollar-denominated sukuk bond, the first of its kind, provided funding for general financing requirements, infrastructure projects, and social welfare programs.
The Philippine government faces the ongoing challenge of balancing economic growth with the need to manage its debt obligations.
As the global economic landscape continues to evolve, the government will need to carefully assess its borrowing needs and prioritize investments that will drive sustainable economic development while maintaining a prudent level of external debt.