The Philippines is bracing for about $7 billion in foreign exchange outflows for external debt payments in a challenging global financial environment next year, although this is about one-fifth lower than the anticipated requirement this year.

The country’s principal and interest payments on foreign debt will reach $8.8 billion this year before declining in 2009, according to the central bank’s estimates.

Accounting for about two-thirds of foreign debt requirements, the public sector is expected to shell out $5.3 billion for principal and interest payments this year, which will go down to $4.5 billion in 2009.

Of the country’s foreign debt service requirement this year, $6 billion represents principal maturities, of which $3.2 billion is for public sector obligation. For next year, the amount of maturing principal is $4.5 billion, of which $2.6 billion represents public sector requirements.

Total foreign debt amounts to $54.8 billion or about a third of the country’s gross domestic product as of end-June. Official creditors—consisting of multilateral institutions such as the Asian Development Bank and the World Bank as well as bilateral creditors like the Japan Bank for International Cooperation—account for 41.6 percent of the country’s total debt. About a third is owed to foreign holders of bonds and notes while foreign banks and other financial institutions and suppliers account for the remainder.

External funding is a risk given the lingering global financial turbulence but the country has sufficient buffers on its foreign debt obligations, New York-based think tank Global Source said in a recent commentary.

“Funding conditions can be expected to become more challenging with bleaker moods depressing equities and international markets expected to remain tight for a while,” said a Nov. 28 commentary written by economists Romeo Bernardo and Marie-Christine Tang.

“Fortunately, these are well covered by the country’s international reserves as well as FCDU [foreign currency deposit unit] deposits in banks,” the report said.

The country’s gross international reserves stood at $35.7 billion as of end-October, equivalent to 3.6 times the country’s short-term external debt based on original maturity and 2.5 times based on residual maturity or the sum of short-term external debt and medium- and long-term loan repayments falling due in the next 12 months.