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External Debt Drops by US$1.4 Billion in First Quarter of 2009


As of end-March 2009, outstanding Philippine external debt declined by US$1.4 billion to US$52.5 billion, from the US$53.9 billion recorded in December 2008. On a year on year basis, the debt stock dropped by nearly 4 percent to US$2.1 billion from US$54.6 billion in March 2008.

External debt refers to all types of borrowings by Philippine residents from non-residents that were approved/registered by the Bangko Sentral ng Pilipinas (BSP).

Major External Debt Ratios

BSP Governor Amando M. Tetangco, Jr. observed that: “Major external debt indicators remained at prudent levels in the first quarter of the year.” Gross international reserves (GIR) stood at US$39.0 billion at the close of the quarter bringing the ratio of reserves to short-term external debt to 6.0 based on original maturity, from 5.4 in December last year, and maintaining a comfortable level of 3.4 based on remaining maturity.  Short-term  accounts under the second concept pertain to 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 April 2009 to March 2010.

The Governor also cited the continuing improvement in the country’s external debt ratios which relate total outstanding debt to Gross National Product (GNP ). During the first quarter, a moderate improvement was noted from 29.0 percent to 28.8 percent. The present ratio is also much lower than the 32.6 percent recorded a year ago. Using Gross Domestic Product (GDP1  ), the ratio remained stable at 32.3 percent since end-2008. As an indicator of solvency, the ratios have been observed to be generally declining since 2002, and are currently at their lowest levels since their peak in 1986 when they reached 99.8 percent for debt to GNP and 97.7 percent for debt to GDP.

The external debt service ratio (DSR), on the other hand, was estimated at 10.3 percent 2  during the first quarter, slightly higher than the 9.6 percent recorded in December 2008 and 9.8 percent in March 2008. The ratio, which relates total principal and interest payments to exports of goods and receipts from services and income (which include remittances by overseas Filipino workers), is a measure of liquidity, or the adequacy of the country’s foreign exchange earnings to meet maturing principal and interest payments. It has consistently remained below the 20 to 25 percent international benchmark.

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

Changes in External Debt Stock

The US$1.4 billion contraction in debt stock during the first quarter resulted from the US$1.3 billion negative foreign exchange revaluation adjustment largely on account of the weakening of the Japanese yen against the U.S. dollar. The currency of reporting for Philippine external debt statistics is the U.S. dollar and the debt stock is revalued using exchange rates as of end of the report quarter.

Residents’ investments in Philippine debt papers issued abroad increased by about US$540 million during the quarter, correspondingly reducing the external debt stock.  This was, however, partially negated by net availments of foreign borrowings of less than US$270 million, and upward audit adjustments of more than US$200 million.

Debt Profile

The external debt portfolio remained predominantly medium to long term (MLT) in nature at the close of the first quarter, with MLT accounts representing 88 percent of total.   The weighted average maturity for all MLT accounts (those with maturities longer than one year) was estimated at 20 years; public sector borrowings had longer average tenors of nearly 22 years, compared to 11 years for the private sector. Short term external debt, which accounted for 12 percent of debt stock, consisted largely of inter-bank borrowings and trade-related obligations.

Total public sector external debt dropped to US$39.3 billion, or by US$1.0 billion from US$40.3 billion in December 2008, mainly as a result of negative foreign exchange revaluation adjustments (US$1.2 billion), with yen-denominated debts accounting for the bulk (US$960 million).

Private sector external debt similarly declined to US$13.2 billion by the first quarter of the year from US$13.5 billion in December 2008.  With the decline in both public and private sector borrowings, their share to total remained at the end-2008 levels of 75 percent and 25 percent, respectively.

The creditor profile also remained unchanged: official creditors (consisting of multilateral institutions and bilateral creditors) continued to have the largest exposures at 45 percent of total, followed by foreign holders of bonds and notes with 33 percent, and foreign banks and other financial institutions, 16 percent. The rest of the creditors were mostly foreign suppliers and buyers.

The currency composition of external debt was likewise the same as of end-2008: U.S. dollar-denominated accounts represented 51 percent of total; Japanese yen-denominated accounts, 29 percent; multi-currency loans from the Asian Development Bank and the World Bank, 10 percent; and the rest of the accounts comprising the 10 percent balance were denominated in 16 other currencies.


1  Based on annual GNP/GDP (annualized for March 2008 and March 2009)
2  Based on annual Debt Service Burden and Exports of Goods and Receipts from Services and Income (annualized for March 2008 and March 2009)

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