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External Debt Ratios Continue to Improve in Third Quarter

12.28.2007

Major external debt ratios continued to improve during the third quarter of 2007 due to higher levels of aggregate output, foreign exchange receipts and international reserves in spite of the increase in external debt stock.

Outstanding Philippine external debt approved and/or registered by the Bangko Sentral ng Pilipinas stood at US$54.4 billion as of end-September 2007.  This level represents a US$1.4 billion (2.6 percent) increase from US$53.0 billion as of end-June 2007, largely due to upward revaluation adjustments of third currency-denominated debt arising from the weakening of the U.S. dollar. Third currencies refer to currencies other than the Philippine peso and the U.S. dollar.

The external debt ratio, or outstanding external debt as a percentage of aggregate output or GNP , improved to 36.8 percent, from 37.8 percent in June and 44.4 percent a year ago (September 2006).  In terms of GDP1, the external debt ratio also improved to 40.4 percent, from 41.3 percent in June and 48.3 percent a year ago.

For the nine-month period ending September 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 9.8 percent, lower than the 11.1 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 service loans maturing during the current period.

Gross international reserves (GIR), which stood at US$30.9 billion as of end-September 2007, represented 4.5 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 October 2007 to September 2008. The same ratios would reach 4.7 times and 2.7 times, respectively, using the higher GIR of US$32.7 billion as of end-November.

Please refer to the attached table for the time series data from 2000.

Changes in External Debt Stock

The increase in the external debt stock resulted principally from the upward foreign exchange revaluation adjustments on third currency-denominated accounts (US$1.1 billion).  Without said adjustments, external debt would have risen by only US$0.3 billion, primarily due to net availments by offshore banking units, proceeds of which were relent or invested abroad.

Year-on-year, the debt stock rose by US$366 million (0.7 percent), from US$54.1 billion in September 2006, also due to positive foreign exchange revaluation adjustments (US$653 million) and net foreign borrowing transactions (US$432 million). The effect on the debt stock, however, was tempered by increased investments of residents in Philippine debt papers (US$432 million) and downward audit adjustments (US$287 million).

The higher debt stock is not expected to have an immediate impact on the country’s external debt payments as most of the affected accounts are Japanese yen-denominated, which have very long repayment terms ranging from 20 to 40 years.

Prepayments during the 12-month period ending September 2007 reached US$2.0 billion, of which US$1.8 billion pertained to future years’ maturities.

External Debt Profile

The maturity profile of the country’s external debt remained predominantly medium to long term, which accounted for 87.3 percent of the total. These loans, with original tenors of more than one year, had a weighted average maturity of 18.7 years, slightly longer than 18.4 years last June and 17.9 years in September last year. Public sector borrowings had an average term of 21.3 years, more than twice the private sector’s 9.4 years.

Total consolidated public sector external debt totaled US$37.2 billion, higher by US$374 million from last quarter’s US$36.8 billion although share to total declined by 1.0 percentage point to 68.4 percent. The increase resulted from positive foreign exchange revaluation adjustments which amounted to more than US$1.0 billion, partially offset by net loan repayments (US$581 million) and increased investments of residents in Philippine debt papers (US$112 million). Private sector debt grew by more than US$1.0 billion and reached US$17.2 billion, from US$16.2 billion in June; share to total also rose to 31.6 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 38.5 percent of the country’s total external debt, followed by foreign holders of bonds and notes at 33.3 percent, and foreign banks and other financial institutions, 20.2 percent. The rest of the creditors (8.0 percent) were mostly foreign suppliers.

More than half of the debt stock (51.7 percent) was denominated in U.S. dollars and about a quarter (25.0 percent) in Japanese yen. 

Multi-currency loans from the Asian Development Bank and the World Bank comprised 9.4 percent, and the rest (13.9 percent) were in 16 other currencies.

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[1] Based on annual/annualized GNP/GDP

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