Advanced foreign loan payments up as of April
By Melissa Luz T. Lopez,
Senior Reporter
Early payments made for foreign loans surged by over a third as of end-April, data from the Bangko Sentral ng Pilipinas (BSP) showed, which may have contributed to the depreciation of the peso over the past months as it added to the demand for dollars.
BSP Managing Director Francisco G. Dakila, Jr. said debt prepayments totaled $2.014 billion as of end-April, jumping by 35.1% from the $1.491 billion settled during the comparable year-ago period.
The national government and private businesses may choose to frontload their payments of external debt ahead of the arrival of goods and services they avail of, especially when market conditions appear favorable.
The first four months of the year saw entities choosing to settle their dues ahead of time, which the central bank official said was in line with expectations that the country’s debt burden will sustain a downtrend.
“This is consistent with what we see that the long-run trend is for our foreign indebtedness to go down in proportion to the size of the economy,” Mr. Dakila told reporters during a briefing last week.
The country’s external debt amounted to $73.805 billion as of end-March, around 80% of which come with medium and long-term maturities. Foreign debt accounted for 24.5% of the country’s gross domestic product as of end-2016, lower than the 26.5% share it took a year prior, according to BSP data.
Financial markets encountered added volatility earlier this year as the United States Federal Reserve introduced a fresh lift-off in interest rates in March, while baring hints that it was on track with its plan to raise rates twice more within 2017.
Other external developments which likely affected market sentiment between January-April include political concerns in Europe, particularly the start of formal discussions for the United Kingdom’s exit from the European Union.
While paying off external loans would bode well for the economy, Mr. Dakila said it likely caused a short-term depreciation for the peso during the period.
“Debt prepayment is a welcome development, but of course it will have impact on the peso-dollar rate,” Mr. Dakila explained. “When you prepay, you demand dollars to pay your indebtedness… It’s an additional demand for dollars, but the purpose of that is to lower your indebtedness.”
The peso traded above P50 versus the dollar since mid-February before returning to P49.705 on April 10, a level sustained for the rest of the month.
Central bank officials have said that the daily exchange rate continues to be market-driven, but maintained that they stand ready to intervene whenever they see excessive swings during trading.
The BSP estimates the peso to trade between the P48-50 range this year, although some private economists said the local currency could finish around the P51 level by December.
