Gov’t interest payments down 8%

The national government’s spending for interest payments fell in the first half from a year ago due partly to the appreciation of the peso that made dollar-denominated debts cheaper in local currency terms.

Although the appreciation of the peso has its disadvantages, a major advantage is its ability to reduce dollar-denominated debts.

Interest payments amounted to P134.5 billion from January to June this year, down 8 percent from P146.7 billion in the same period last year, documents from the Department of Finance showed.

Of this amount, P81.48 billion was accounted for by interest payments on domestic debts while P53.02 billion represented payments for foreign currency-denominated obligations.

Money used to pay for interest on loans is sourced from the government’s budget, which is supported by tax and non-tax revenues it collects and earns.

Principal payments on government debt amounted to P274.27 billion in the first six months.

The strengthening of the peso is appreciated for its benefit of helping reduce the cost of interest payments and borrowings of the government, especially since interest payments have been eating a significant share of the annual national budget.

As provided by law, interest payments are automatically appropriated in the national budget.

The significant amount spent on interest payments has been a cause of discomfort given the country’s need for more infrastructure and social services, but finance officials have time and again refused proposals on debt-restructuring, a move that could harm the country’s credit image.

Officials said maintaining a good creditworthiness gives the country flexibility to tap credit from the local and international markets.

The country recently enjoyed a lift in its credit image. Moody’s upgraded its credit rating on the country from three to two notches below investment grade, while Fitch upgraded its rating from two notches to a notch below investment grade.

The rating firms cited the country’s improving ability to service its obligations given its improving economy and rising foreign exchange reserves.

The government, however, is aiming for an investment-grade rating for the country.

According to the finance department, the government aims to get the investment-grade rating by 2013 by improving its fiscal situation and boosting economic growth.