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Debt Ratios Remain at Comfortable Levels in Second Quarter of 2011

09.30.2011

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. announced that outstanding Philippine external debt approved/registered by the BSP stood at US$61.4 billion as of end-June 2011, reflecting an increase of US$476 million (0.8 percent) from the US$60.9 billion level as of end-March 2011.  While loan transactions for the quarter resulted in net outflows (that is, loan repayments exceeded loan availments), a growth in external debt was recorded mainly due to upward foreign exchange revaluation adjustments of US$533 million as the US Dollar (the reporting currency for outstanding debt) weakened against other major currencies such as the Japanese Yen, thereby increasing debt figure in US dollar terms.

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

Year-on-year, external liabilities grew by US$4.2 billion (or 7.3 percent) due to net availments of US$3.4 billion and upward foreign exchange revaluation adjustments of US$2.4 billion as other currencies strengthened against the US Dollar. On the other hand, the US$1.7 billion rise in resident investments in Philippine bonds and notes issued abroad during the last 12 months reduced foreign debt by the same extent.

External Debt Ratios

"Major external debt indicators remained at comfortable levels at the end of the second quarter", the Governor continued. Gross international reserves (GIR) amounting to US$69.0 billion as of June 2011 represented a cover for short-term debt of 9.6 times (under the original maturity concept) and 6.4 times (under the remaining maturity concept), much higher than the international benchmark of 1.0. [Short-term accounts under the remaining maturity concept consist of 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 July 2011 to June 2012.]

The external debt ratio or outstanding external debt as a percentage of gross national income (GNI1) improved to 21.8 percent from 23.4 percent a year ago. Using gross domestic product (GDP1) as denominator, the debt ratio likewise reflected an improvement from 31.2 percent last year to 28.8 percent by June 2011.
 
The external debt service ratio (DSR) or the percentage of total principal and interest payments to exports of goods and receipts from services and income likewise further improved from 9.2 percent a year ago to 7.9 percent2  in the second quarter of 2011. The ratio has consistently remained well below the 20 to 25 percent international benchmark range, indicating the sustained improvement in the country's capacity to service maturing obligations.

Debt Profile

The external debt portfolio remained predominantly medium to long-term (MLT) in tenor, with share to total debt at 88.4 percent.  [MLT accounts are those with maturities longer than one (1) year.]  The larger share of MLT accounts means that loan payments are spread out over a longer period of time, resulting in a more manageable level of payments.

The weighted average maturity for all MLT accounts stood at 22.7 years.  Accounts of the public sector had a longer average tenor of 24.5 years, compared to 11.5 years for the private sector.

Short term external debt comprised the 11.6 percent balance of the debt stock, consisting largely of trade credits and inter-bank borrowings.

Public sector external debt rose to US$46.9 billion from US$46.5 billion in March 2010. While transactions during the reference quarter resulted in net repayments of US$232 million, positive foreign exchange revaluation adjustments of US$530 million for debt denominated in third currencies increased outstanding debt. Private sector external debt likewise grew, albeit at a lower pace, from US$14.4 billion to US$14.5 billion, mainly due to increased borrowings by local banks.

The creditor profile remained unchanged: official creditors (consisting of multilateral institutions and bilateral creditors) continued to have the largest exposures at 43.3 percent of total, followed by foreign holders of bonds and notes, 36.9 percent, and foreign banks and other financial institutions, 13.3 percent. The rest of the creditors (6.5 percent) were mainly foreign suppliers/exporters.

Similarly, the currency composition of external debt was largely the same, dominated by accounts in US Dollars (47.4 percent) and Japanese Yen (28.0 percent). Multi-currency loans from the Asian Development Bank and the World Bank comprised 10.2 percent of total debt, while the rest of the accounts (14.4 percent) were denominated in 18 other currencies.

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1 Based on annualized GNI/GDP

2 Based on annualized Debt Service Burden and Exports of Goods and Receipts from Services and Income

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