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Debt Indicators Remain at Prudent Levels in First Quarter of 2012


Bangko Sentral ng Pilipinas (BSP) Officer-In-Charge Juan D. De Zuñiga, Jr. reported that the country’s outstanding external debt approved/registered by the BSP stood at US$62.9 billion as of end-March 2012, reflecting an increase of US$1.2 billion (or 1.9 percent) compared to the level at the close of 2011. The increase is due largely to US$2.3 billion net availments (excess of borrowings over repayments) as investment and business activities by both public and private sector entities escalated due to the upbeat business sentiment.   Its impact was partially mitigated by: (a) negative foreign exchange revaluation adjustments (US$0.83 billion) as the U.S. dollar recovered against other currencies, particularly the Japanese Yen; and (b) higher resident investments in Philippine debt papers (US$0.28 billion).

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

On a year-on-year basis, debt stock grew by US$2.0 billion (or 3.2 percent) due to additional acquisitions by non-residents of Philippine debt papers (US$1.0 billion) and net availments (US$0.97 billion).

External Debt Ratios

The Officer-In-Charge observed that notwithstanding the higher debt level, major external debt indicators remained at very prudent and comfortable levels in the first quarter. Gross international reserves (GIR), which reached a record high of US$76.1 billion in March 2012, represented cover for short-term debt of 10.3 times (under the original maturity concept) and 6.9 times (under the remaining maturity concept).  The ratio under the remaining maturity concept remained substantially higher than the international benchmark of 1.0.  [ST 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 starting April 2012.] 

The external debt ratio or outstanding external debt as a percentage of aggregate output (gross national income or GNI) is an indicator of solvency and reflects the country’s capacity to repay foreign obligations over a long-term horizon.  The ratio improved to 20.7 percent from 22.2 percent a year ago.  The same positive trend is observed using gross domestic product (GDP), with the ratio at 27.4 percent compared to 29.5 percent in 2011. 

The external debt service ratio (DSR), or the ratio of principal and interest payments relative to exports of goods and receipts from services and income, is a measure of the sufficiency of foreign exchange to meet currently maturing obligations.  The improvement in the ratio to 8.0 percent from 8.2 percent the previous year was due to an increase in the country’s merchandise exports despite developments in the U.S. economy and the Euro zone. The ratio remained much lower than the 20 to 25 percent international benchmark, indicating a strong liquidity position vis-à-vis payment obligations. 

Debt Profile

The external debt portfolio remained predominantly medium to long-term (MLT) in tenor, with MLT accounts representing 88.2 percent of total.  [MLT loans 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 debt payments.

The weighted average maturity for all MLT accounts stood at 22.3 years.  Public sector borrowings had a longer average tenor of 24.2 years, compared to 10.9 years for the private sector. 

Short term external debt comprised the 11.8 percent balance of debt stock, and consisted largely of trade credits and inter-bank borrowings.

Total public sector external debt rose to US$48.3 billion in March 2012 due to net availments of US$1.6 billion, pertaining mostly to borrowings of the National Government to support increased spending for public infrastructure. The upward impact of this development on the debt stock was partially offset by negative foreign exchange revaluation adjustments (US$0.84 billion) as well as additional investments by residents in Philippine debt papers (US$0.13 billion). Private sector external debt likewise grew from US$14.1 billion to US$14.6 billion, mainly due to higher trade credits availed of by non-banks and bond issuances by local banks for general funding requirements.

The creditor profile remained unchanged, the Officer-In-Charge continued.  Borrowings from official creditors (consisting of multilateral and bilateral funders) continued to have the largest share at 42.5 percent of total; most of these loans carry “softer” or more concessional terms.   Foreign holders of bonds and notes comprised 38.5 percent of total, followed by foreign banks and other financial institutions at 12.3 percent. The rest of the creditors (6.7 percent) were mainly foreign suppliers/ exporters. 

The currency composition of external debt was likewise essentially maintained: U.S. dollar-denominated accounts represented nearly half (49.5 percent) of total,  Japanese Yen accounts accounted for 25.1 percent, and multi-currency loans from the Asian Development Bank and the World Bank, 11.6 percent.  The rest of the accounts comprising the 13.8 percent balance were denominated in 18 other currencies.

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