Emerging markets face burden of rising interest payments

On top of higher amortization for a ballooning debt, a jump in interest payments would also burden emerging markets like the Philippines, the Washington-based Institute of International Finance (IIF) said.

“Despite the prevailing argument that the debt stock is less relevant in a low interest rate environment, higher debt service payments look inevitable as structural factors including unfavorable demographics continue to push debt levels higher. While the downward spiral in interest rates globally since the mid-1980s has made debt rollover relatively easier for governments, net spending on interest has been on an upward trend in emerging markets,” the IIF said in a Nov. 20 report titled “More debt, more trouble.”

“Given widespread COVID-19-related revenue losses this year, the ratio of government interest payments to revenues reached a near record-high of 10 percent in emerging markets. Looking ahead, this ratio is expected to remain above 8 percent, largely driven by Turkey, India, South Africa and the Philippines,” the IIF said.

Government data showed that from January to September, interest payments rose 6.5 percent to P313 billion from P293.7 billion a year ago, although the actual disbursement was below the P328-billion program for the first nine months.

In a report this month, the Department of Budget and Management attributed the below-program interest payments as of September to “lower actual interest and foreign exchange rates, rejection of bids and premiums for issued bonds” even as the year-on-year on increase covered coupon payments for bonds issued this year and last year.

As such, end-September interest payments as a percentage of revenues rose to 14.6 percent from 12.62 percent a year ago due to the lower year-on-year tax and non-tax collections caused by the pandemic-induced recession, Bureau of the Treasury data showed.

On the other hand, end-September interest payments as a percentage of expenditures declined to 10.35 percent from 11.18 percent last year due to savings coming from favorable foreign exchange rates for external borrowings, which offset the higher payments for domestic bonds.

Budget documents for 2021 showed that interest payments had been programmed to jump to P420.9 billion this year from P360.9 billion last year.

As the government borrows more from local sources, domestic interest payments will climb to P309.4 billion in 2020 from P250.3 billion in 2019.—Ben O. de Vera INQ