Debt payments surge in first half

THE National Government’s debt service bill rose to P773.79 billion in the first half, as principal payments nearly doubled from its year-ago level, data from the Bureau of the Treasury (BTr) showed.

Preliminary data from the BTr showed overall debt payments went up by 41.4% in the first six months of the year, from P547.35 billion paid in the January-June period of 2020.

In June alone, debt payments increased by 146.6% to P150.195 billion from P60.911 billion recorded in the same month last year.

The government borrows from local and foreign sources to plug its budget gap that is seen to widen to 9.3% of gross domestic product (GDP) this year. Its borrowings were ramped up in 2020 as revenues plunged and spending ballooned amid the coronavirus pandemic. This translated to bigger debt payments as obligations matured.

The bulk or 80% of the total debt payments in June went to settle amortizations, with the rest used to pay off interest.

Principal payments skyrocketed by 1,661% to P120.27 billion in June from P6.826 billion a year ago, largely because of BTr’s P113.424-billion redemption of its existing local debt during the month.

The Treasury also paid P6.846 billion to its foreign creditors in June.

Interest payments also increased by 8.6% to P29.925 billion from P27.561 billion in the same month a year ago. This consisted of P27.11 billion in interest payments on domestic debt and P2.815 billion interest payments on foreign loans.

Out of the interest paid to local debt, P14.16 billion went to settle interest on outstanding retail Treasury bonds, P9.655 billion for Treasury bonds and P2.73 billion for Treasury bills.

June’s debt service bill pushed the overall payments in the first half higher to P773.79 billion, which consisted of 73% in amortization payments and 27% in interest payments.

Principal payments went up by 57% to P565.26 billion in the first half from P359.67 billion a year ago. Of which, P405.232 billion were paid to local creditors and P160.02 billion went to settle foreign obligations.

Meanwhile, interest payments grew by 11.1% to P208.53 billion in the six-month period from P187.68 billion the year before. Broken down, this comprised of P159.34 billion in interest for domestic debt and P49.2 billion for external loans.

The government aims to pay a total of P1.794 trillion of its existing debt by end-2021, and borrow P3 trillion from local and foreign creditors to support its P4.5-trillion spending plan meant to drive recovery from the pandemic.

So far, it has raised P1.93 trillion in the first half, up 12.2% year on year.

The economy grew by 11.8% in the second quarter coming from a deep 17% slump in the same period last year. Renewed lockdowns in late March to April, however, slowed down growth and resulted in a 1.3% quarter-on-quarter GDP contraction.

“The re-imposition of stricter but localized quarantine measures will have consequences on economic activities in the third quarter. Note, however, that unlike last year, this year’s stricter quarantine measures are much more localized,” the Department of Finance (DoF) said in an economic bulletin on Sunday.

The DoF said more supply of vaccines and a faster inoculation program should provide protection to a bigger portion of the population and minimize the pandemic’s impact on the economy.

Reforms like the recently passed law that slashed the corporate income tax and streamlined incentives, should also help boost the economy’s competitiveness.

The DoF reiterated that Congress should pass bills that will ease restrictions on foreign investor participation in the country. These measures are the amendments to the Public Service Act, Retail Trade Liberalization Act and Foreign Investments Act. — B.M.Laforga

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