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External Debt Drops by US$0.7 Billion in Second Quarter of 2009


BSP Governor Amando M. Tetangco, Jr. reported that outstanding Philippine external debt as of end-June 2009 declined anew to US$51.8 billion (by US$0.7 billion or 1.3 percent) from the US$52.5 billion recorded in March 2009. On a year-on-year basis, the debt stock reflected a US$3.0 billion drop (or 5.4 percent) from the US$54.8 billion level in June last year.

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

“Major external debt indicators remained at prudent levels during the second quarter”, the Governor continued. Gross international reserves (GIR), which stood at US$39.5 billion at the close of the second quarter, represented 6.9 times the level of short-term external debt based on original maturity, and reflected an improvement from the 4.2 and 6.0 ratios recorded in June 2008 and March 2009, respectively. Under the remaining maturity concept, the ratio likewise improved to 3.9 times the level of short-term external debt, from 2.9 and 3.4 in June 2008 and March 2009, respectively, due to higher reserves and lower short-term obligations.  Short-term  (ST) accounts under the remaining maturity 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 July 2009 to June 2010.

The Governor also cited that the country’s external debt ratios, which relate total outstanding external debt to national income and serve as indicators of solvency, have been observed to be generally on a declining trend since 2002. As of mid-2009, the ratio stood at 28.9 percent using Gross National Product (GNP ) and 32.6 percent using Gross Domestic Product (GDP1), which were lower than the ratios recorded a year ago of 30.9 percent and 33.9 percent, respectively.

The debt service ratio (DSR) was estimated at 10.6 percent2     for the 12-month period ending June 2009 and was slightly higher than the 10.3 percent recorded in March 2009 and 10.1 percent in June 2008. While debt service burden declined, exports of goods and receipts from services and income (XGSI) significantly decreased due to the lingering global economic slowdown. The ratio has remained significantly low compared to the international benchmark range of 20 to 25 percent. The ratio, which relates total principal and interest payments to XGSI (including 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.

Changes in External Debt Stock

The overall contraction in the debt stock resulted from net repayments of nearly US$708 million, as well as increased investments by residents in Philippine debt papers issued offshore and other accounting adjustments (US$388 million) which fully negated the upward impact on the debt stock of the positive revaluation adjustment (US$437 million) arising from the appreciation of third currencies against the US Dollar. The currency of reporting for Philippine external debt statistics is the US Dollar, and the debt stock is revalued using exchange rates as of end of the report quarter.

Debt Profile

The external debt portfolio remained predominantly medium to long-term (MLT) in nature, with MLT accounts representing 89 percent of total.  As MLT accounts are those with maturities longer than one year, the larger share of MLT accounts to the total means that loan payments are spread out over a longer period of time, resulting in better manageability of debt servicing.

Weighted average maturity for all MLT accounts was about 20 years; public sector borrowings had longer average tenors of nearly 22 years, compared to 11.5 years for the private sector. Short term external debt, which accounted for 11 percent of the debt stock, consisted largely of inter-bank borrowings and trade-related obligations.

Total public sector external debt remained at US$39.3 billion. While residents’ investments in debt papers issued abroad by public sector entities increased (US$332 million) and net repayments of US$74 million were recorded which should have decreased the debt stock, these were offset by upward revaluation adjustments on third currency accounts due to the weakening of the US Dollar.

Private sector external debt declined to US$12.5 billion from US$13.2 billion in March as banks, foreign and local, continued to repay offshore obligations (US$726 million).

The creditor profile also remained unchanged: official creditors (consisting of multilateral institutions and bilateral creditors) continued to have the largest exposures at 44.7 percent of total, followed by foreign holders of bonds and notes with 34.1 percent, and foreign banks and other financial institutions,
14.0 percent. The rest of the creditors were mostly foreign suppliers/exporters.

The currency composition of external debt was likewise essentially unchanged: US Dollar-denominated accounts represented 51.1 percent of total; Japanese Yen-denominated accounts, 28.5 percent; multi-currency loans from the Asian Development Bank and the World Bank, 10.4 percent; and the rest of the accounts comprising the 10.0 percent balance were denominated in 17 other currencies.


1  Based on annualized GNP/GDP
2    Based on annualized Debt Service Burden and Exports of Goods and Receipts from Services and Income

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