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External Debt Indicators Further Improve in Second Quarter

09.29.2006

Outstanding Philippine external debt approved and/or registered by the Bangko Sentral ng Pilipinas stood at US$53.9 billion at end-June 2006, down by nearly US$1.4 billion (2.5 percent) from the US$55.30 billion level in March.  On a year-on-year basis, the debt stock declined by more than US$2.1 billion (3.8 percent) from US$56.0 billion in June of 2005.

External Debt Indicators

Further improvements in the other major external debt indicators were recorded during the period.  Gross international reserves (GIR), which reached an all-time high at US$21.54 billion as of end-August, represented 3.7 times the level of short-term debt based on the original maturity concept, and 1.8 times the level of short-term debt based on the remaining maturity concept. Short-term accounts under the remaining maturity concept consist of loans with original maturities of one year or less plus amortizations on medium and long-term accounts falling due within the next 12 months from the reference date, that is, end-June 2006.  The GIR level could also cover 4.3 months of imports of goods and payments of services and income.

External debt service ratio (or the percentage of the country’s total principal and interest payments to total exports of goods and receipts from services and income) remained well below the 20 percent international benchmark and further improved to 11.5 percent in the first semester from 12.4 percent in the first quarter and 13.3 percent in the first semester of 2005. Similarly, the   debt service burden to current account receipts ratio dropped to 10.9 percent from 11.7 percent and 12.4 percent in the first quarter and the first half of 2005, respectively. 

At their current levels, the external debt service ratio and debt service burden ratio to current account receipts declined by 5.6 and 4.9 percentage points when compared against the record high levels posted in 2002 of 17.1 percent and 15.8 percent, respectively. The ratios indicate the country’s increasing capacity to generate foreign exchange earnings to service current maturities of its foreign obligations.

Considerable improvement was also posted by the external debt ratio, or outstanding external debt as a percentage of aggregate output or GNP for the 12-month period ending June 2006, which further dropped to 46.5 percent in June, from 47.7 percent in March, and 56.2 percent a year ago. The current external debt ratio represents a 21.8 percentage point (or 31.9 percent) decline from the ratio’s peak of 68.3 percent in 2001.  In terms of GDP, the external debt ratio likewise fell to 50.7 percent, from 52.0 percent in March and 60.7 percent a year ago.

Whether measured using GNP or GDP, declining debt ratios represent a positive development, as this indicates that the economy is growing faster than the rate it accumulates external debt and, therefore, better able to service its debt on a sustained basis.

Factors Behind Debt Decline

The decline in debt stock during the second quarter resulted from the net repayment of foreign borrowings which exceeded US$2.0 billion for both public and private sector borrowers.  This was only partly offset by upward foreign exchange revaluation adjustments on third currency-denominated liabilities (US$456 million), particularly those denominated in Japanese Yen and the Euro, and increased non-residents’ investments in international Philippine debt papers (US$209 million). Note that, prepayments of future maturities totaled US$1.1 billion during the second quarter.  These were traced to both the public sector (US$721 million) and the private sector (US$348 million).

By maturity, 89 percent of the country’s external debt were medium and long-term (i.e., with original tenors of more than one year), and had a weighted average maturity of 18 years. Public sector borrowings had a longer average term of 20.5 years, compared to 10 years for the private sector.

Consolidated public sector external debt dropped by US$482 million during the period although share to total increased to 69.1 percent, from 68.2 percent in March.  Private sector debt likewise declined by US$914 million with share to total consequently falling from 31.8 percent in March to 30.9 percent in June.

Official creditors (consisting of multilateral institutions, such as the Asian Development Bank and the World Bank, and bilateral creditors mainly the Japan Bank for International Cooperation) accounted for 39.6 percent of total debt, followed by foreign holders of bonds and notes at 33.9 percent, and foreign banks and other financial institutions, 20.9 percent. The rest of the creditors (5.6 percent) were mostly foreign suppliers.
 
The second quarter was marked by subdued borrowing activities by both the public and private sectors with gross disbursements on medium- and long-term accounts totaling only US$269 million, 77.9 percent of which was accounted for by the National Government and other public sector borrowers. Proceeds of said borrowings financed infrastructure and other priority projects.

Please refer to attached table for details.

View Table

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