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External Debt Ratios Sustained Improvement Despite Slight Increase in Debt Level

09.30.2008

Outstanding Philippine external debt approved and/or registered by the Bangko Sentral ng Pilipinas stood at US$54.8 billion as of end-June 2008, higher than the end-March 2008 level of US$54.6 billion and the US$53.0 billion recorded as of end-June 2007.

Improvements in Major External Debt Ratios Continue

Bangko Sentral Governor Tetangco said that, in general, the country’s external debt ratios continued to improve.

The external debt ratio, or total outstanding debt as a percentage of aggregate output or GNP 1  , declined to 30.9 percent, from 35.0 percent in December 2007 and 37.9 percent in June 2007. In terms of GDP1, the external debt ratio also improved to 33.8 percent, from 38.1 percent in December 2007 and 41.2 percent in June 2007. The declining ratio indicates the country’s improving capacity to service its maturing foreign obligations.

The external debt service ratio (DSR) or the percentage of total principal and interest payments to total exports of goods and receipts from services and income (which include remittances of overseas Filipino workers) was estimated at 10.6 percent during the second quarter of 2008, down from 10.8 percent during the same period last year.  The DSR has remained well below the 20 to 25 percent international benchmark, indicating that the country has sufficient foreign exchange earnings to service maturing principal and interest payments during the current period.

Gross international reserves (GIR), which continued to reach peak levels, stood at US$36.7 billion as of end-June 2008. The amount is equivalent to 4.2 times (from 4.4 times as of end-June 2007) the level of short-term debt based on the original maturity concept and 2.9 times (from 2.6 times) under the remaining maturity concept.  Short-term accounts under the latter category include obligations with original maturities of one year or less plus amortizations on medium and long-term accounts falling due within the next 12 months, i.e., from July 2008 to June 2009.

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

Changes in External Debt Stock

The slight increase in the debt stock during the second quarter may be attributed to increased holdings of Philippine debt papers by non-residents (US$46 million) and upward audit adjustments (US$91 million). The availment of foreign borrowings (US$1.2 billion) was almost completely offset by downward foreign exchange revaluation adjustments (US$1.2 billion) due to the strengthening of the U.S. dollar against the Japanese Yen. Prepayments during the period totaled US$513 million, of which US$509 million pertained to maturities in 2009 and beyond.

Year-on-year, the debt stock rose by an aggregate of US$1.8 billion as a result of (a) upward foreign exchange revaluation adjustments (US$2.8 billion); (b) increased holdings of Philippine debt papers by non-residents (US$385 million); and (c) upward audit adjustments (US$304 million), negating net principal repayments of US$1.7 billion. Prepayments on external debt accounts during the 12-month period ending June 2008 totaled US$1.2 billion, of which US$1.1 billion pertained to obligations maturing beyond the current year.

External Debt Profile

The maturity profile of the country’s external debt remained predominantly medium to long term, which accounted for 84 percent of the total. These loans, with original tenors of more than one year, had a weighted average maturity of 20.0 years, longer than the 18.9 years recorded at end-2007. Public sector borrowings had an average term of 21.7 years, much longer than the private sector’s 11.8 years. Short-term external debt represented 16 percent of the total.

Total consolidated public sector external debt declined to US$38.7 billion from US$40.1 billion last March 2008; its share to total also dropped to 70.6 percent, from 73.5 percent.

In contrast, private sector external debt increased by more than US$1.6 billion to US$16.1 billion, from US$14.5 billion in March; its share to total also increased to 29.4 percent, from 26.5 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 41.6 percent of the country’s total external debt, followed by foreign holders of bonds and notes at 33.0 percent, and foreign banks and other financial institutions, 16.5 percent. The rest of the creditors (8.9 percent) were mostly foreign suppliers.

U.S. dollar-denominated accounts comprised more than half of the debt stock (53.1 percent) while Japanese yen-denominated accounts comprised 26.4 percent. Multi-currency loans from the Asian Development Bank and the World Bank comprised 9.4 percent, and the rest (11.1 percent) were in 16 other currencies.

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1  Based on annual/annualized GNP/GDP

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