S&P sees continued rise in gov’t debt costs

Interest payments are expected to continue eating up a big share of government revenues as borrowing costs continue to rise, risking diverting budget funds from state programs that would benefit Filipinos to debt servicing.

Interest costs, as a share of state revenues, are now expected to average 12 percent this year until 2026, YeeFarn Phua, director at S&P Global Ratings, said in an email interview last week.

Phua said interest payments “have been steadily rising” since 2020, when the government fattened its debt stock to bankroll a costly pandemic response. Data from the Bureau of the Treasury showed 15 percent of state revenues went to paying interest in the first eight months of the year alone.

In 2022, 14.2 percent of government revenues were used for interest settlement, relatively flat from 2021 when this ratio was at 14.3 percent.

Interest rates have been sustaining their ascent on the back of surging inflation, which has prompted the Bangko Sentral ng Pilipinas (BSP) to embark on an aggressive monetary policy tightening to tame stubbornly high consumer prices.

The BSP has hiked its policy rate by a total of 4.25 percentage points to 6.25 percent since March, with Governor Eli Remolona Jr. recently hinting at more tightening after inflation rose to a four-month high in September.

As it is, the high interest rate environment is creating headaches for a government that has to bridge a projected P1.5-trillion budget gap this year. INQ