Southeast Asian debt service burden varies

Southeast Asian debt service burden varies

HONG KONG (Reuter): Asian countries suffering from weaker currencies and higher interest rates inevitably face increased debt servicing costs, both sovereign and private, but the intensity of this extra pain will depend on debt structure and borrowing clout, analysts said.

"All things being equal, private sector debt is more of a problem than public sector debt because there is slightly less flexibility in changing the terms of private sector debt," said Miron Mushkat, chief economist at Lehman Brothers.

"It also depends on the level of debt and the structure of the debt, (the problem is worse) if much of it is short-term and at relatively punitive interest rates," he said.

With the exception of Singapore, all the Southeast Asian countries experiencing significant currency depreciation also have fairly high levels of public external debt as a percentage of gross domestic product.

According to recent figures compiled by the Economist Intelligence Unit, the Philippines has the highest public debt to GDP ratio, at 56.2 percent, followed by Indonesia 46.4 percent, Thailand 44.6 percent and Malaysia 38.1 percent.

In Singapore, by comparison, external public debt is just eight percent of GDP.

In recent years, private sector borrowing has become a larger share of external borrowing in the Asian Tiger economies, but analysts said there are still differences among nations.

Mark Sundberg, chief regional economist at Salomon Brothers, noted that Indonesia still has a "more or less" stable source of long-term public financing through the Consultative Group on Indonesia (CGI), a donor group led by the World Bank.

In July, the CGI pledged US$5.3 billion to Indonesia to support the country's development, the same as last year.

"So it means that for Indonesia, a larger share of debt is public sector, something like 60 percent, and Indonesia has been prepaying some of the more expensive debt over the last several years," said Sundberg.

In contrast, only about 31 percent of Thailand's external public debt represents public sector obligations. That suggests that Thai companies, especially those with short-term obligations, would be most hurt by the weaker baht.