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Debt Ratios Remain at Prudent Levels even as External Debt Rises in the Third Quarter


Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. reported that the country’s outstanding external debt approved/registered by the BSP stood at US$59.8 billion as of end-September 2010, reflecting an increase of US$2.5 billion (or 4.4 percent) from US$57.3 billion in June 2010. The growth resulted mainly from the weakening of the U.S. dollar against major currencies in which the country’s debt stock is denominated, such as the Japanese Yen, increasing the outstanding debt in US Dollar terms by more than US$1.5 billion. Net new borrowings during the quarter of US$788 million and additional holdings of Philippine debt papers by non-residents also contributed US$154 million to the increase in debt level.

External debt refers to all types of borrowings by Philippine residents from non-residents approved/registered by the BSP.

On a year-on-year basis, the debt stock grew by US$5.0 billion (or by 9.2 percent) from US$54.7 billion in September 2009 as new borrowings exceeded loan repayments by more than US$4.0 billion, coupled with upward foreign exchange revaluation adjustment of US$1.1 billion. Increased holdings of Philippine bonds and notes by residents slightly reduced the debt stock by US$269 million.

Major External Debt Ratios

“Major external debt indicators remained at prudent levels at the end of the third quarter”, the Governor continued. Gross international reserves (GIR) reached US$53.8 billion at end-September 2010, resulting in further improvement of the GIR to short-term (ST) external debt ratio under both the original and remaining maturity concepts. ST accounts under the remaining maturity concept pertain to obligations with original maturities of one (1) year or less, plus amortizations on medium and long-term accounts falling due within the next 12 months, i.e., from October 2010 to September 2011. 

With the increase in GIR, reserves are now equivalent to 9.4 times the level of ST external debt based on original maturity compared to 8.9 times in end-June 2010, and 8.4 times a year ago. Under the remaining maturity concept, the ratio showed the same trend, increasing to 5.5 from 4.9 as of end-June 2010 and 4.4 times last year, which are substantially higher than the international benchmark of 1.0. 

The Governor also mentioned that the latest GIR figure of almost US$60.0 billion can already fully cover total outstanding external debt of  US$59.8 billion that have been approved/registered by BSP as of the end of the third quarter of 2010.

The external debt ratio or outstanding external debt as a percentage of aggregate output or gross national product (GNP1) improved to 28.7 percent from 28.6 percent last quarter. Using gross domestic product (GDP1), the external debt ratio was estimated at 33.0 percent, marginally higher than 32.9 percent recorded last quarter due to the higher level of debt.

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 was estimated at 8.9 percent2 for the 12-month period ending September 2010, and reflected an improvement from 9.2 percent and 10.7 percent as of end-June 2010 and end-September 2009, respectively. 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 12-month period.

Debt Profile

The external debt portfolio remained predominantly medium to long-term (MLT) in nature, with MLT accounts representing 90.4 percent of total.  (MLT accounts are those with maturities longer than one (1) 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 a more manageable level of debt payments.

The weighted average maturity for all MLT accounts was 22.4 years.  Public sector borrowings had longer average tenors of 24.0 years, compared to 12.7 years for the private sector. Short term external debt remained well below 10 percent of the debt stock, and consisted largely of trade credits and inter-bank borrowings.

Total public sector external debt increased to US$46.4 billion, or by US$2.2 billion from the second quarter level of US$44.2 billion, primarily due to upward foreign exchange revaluation adjustments of US$1.5 billion.  Private sector external debt grew by US$344 million to US$13.4 billion due to borrowings by banks.
The creditor profile also remained unchanged: official creditors (consisting of multilateral institutions and bilateral creditors) continued to have the largest exposures at 44.9 percent of total, followed by foreign holders of bonds and notes, 36.0 percent, and foreign banks and other financial institutions, 11.5 percent. The rest of the creditors (7.5 percent) were mainly foreign suppliers/exporters.

The currency composition of external debt was likewise essentially unchanged: US Dollar-denominated accounts represented 48.5 percent of total; Japanese Yen-denominated accounts, 29.1 percent; and multi-currency loans from the Asian Development Bank and the World Bank, 10.6 percent.  The rest of the accounts comprising the 11.8 percent balance were denominated in 18 other currencies.

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