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External Debt Drops by US$1 Billion in Second Quarter

09.28.2007

External Debt Stock

Outstanding Philippine external debt approved and/or registered by the Bangko Sentral ng Pilipinas as of end-June 2007 stood at US$53.0 billion, down by US$1.0 billion (1.9 percent) from US$54.0 billion as of end-March 2007. The contraction was due mainly to the increase in investments of local banks in Philippine debt papers issued abroad (US$483 million) as well as the negative foreign exchange (FX) revaluation adjustments on third currency-denominated accounts (US$576 million). Foreign loan transactions—availments and repayments—posted a net repayment of US$7 million.

Year-on-year, the debt stock declined by US$873 million (1.6 percent) from US$53.9 billion in June 2006.  Downward adjustments to reflect negative FX revaluation adjustments (US$653 million), increased investments of residents in Philippine debt papers (US$263 million) and audit adjustments (US$264 million) exceeded net availments (US$307 million).

The external debt ratio, or outstanding external debt as a percentage of aggregate output or GNP , further improved to 37.8 percent, from 41.7 percent in 2006 and 46.5 percent in June last year.  In terms of GDP1, the external debt ratio improved to 41.3 percent, from 45.4 percent in 2006 and 50.5 percent a year ago.  Please refer to the attached table for details.

Prepayments during the quarter totaled US$520 million, of which US$474 million pertained to future years’ maturities.  These included the National Government’s full redemption of the remaining US$126 million Brady bonds originally due in May 2018.

Prepayments during the 12-month period ending June 2007 reached US$2.5 billion, of which US$2.2 billion pertained to future years’ maturities.

Other External Debt Indicators

Other major external debt indicators continued to improve amidst the declining debt stock combined with higher levels of aggregate output, FX receipts and international reserves.

Gross international reserves (GIR), which stood at US$26.4 billion as of end-June 2007, represented 4.4 times the level of short-term debt based on the original maturity concept, and 2.6 times the level of short-term debt based on the remaining maturity concept. Short-term accounts under the remaining maturity concept include not only loans with original maturities of one year or less but also amortizations on medium and long-term accounts falling due within the next 12 months, i.e., from July 2007 to June 2008. The same ratios would reach 5.1 times and 3.0 times, respectively, using the higher GIR of US$30.5 billion as of end-August.

For the 12-month period ending June 2007, the country’s 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, was estimated at 10.8 percent, lower than the 12.4 percent posted during the same period last year.  The country’s debt service ratio has remained well below the 20 to 25 percent international benchmark, indicating that the country has sufficient foreign exchange earnings to pay loans maturing during the current period.

The maturity profile of the country’s external debt remained predominantly medium to long term, which accounted for 88.8 percent of the total. These loans, with original tenors of more than one year, had a weighted average maturity of 18.4 years, slightly longer than 18.1 last March and 18.0 in June last year. Public sector borrowings had an average term of 21.0 years, more than twice the private sector’s 9.4 years.

Total consolidated public sector external debt declined to US$36.8 billion, US$1.5 billion lower than last quarter’s US$38.3 billion, with share to total declining by 1.5 percentage points to 69.4 percent. The contraction resulted from negative FX revaluation adjustments (US$566 million), increased investments in ROPs by residents (US$538 million), and net loan repayments (US$374 million). In contrast, private sector debt rose to US$16.2 billion, from US$15.7 billion in March, with share to total rising to 30.6 percent.

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 38.4 percent of the country’s total external debt, followed by foreign holders of bonds and notes at 34.5 percent, and foreign banks and other financial institutions, 19.5 percent. The rest of the creditors (7.6 percent) were mostly foreign suppliers. Outstanding bonds and notes declined by over US$1.0 billion following prepayments (US$433 million) and increased investments in Philippine debt papers by residents (US$483 million).

More than half of the debt stock (53.3 percent) was denominated in U.S. dollars and about a quarter (24.2 percent) in Japanese yen.  Multi-currency loans from the Asian Development Bank and the World Bank comprised 9.7 percent, and the rest (12.8 percent) were in 16 other currencies.

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