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Debt Ratios Remain at Comfortable Levels in Q1 2013


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$59.0 billion at end-March 2013, lower by US$1.3 billion (or 2.1 percent) compared to the US$60.3 billion level at the close of 2012. This resulted from negative foreign exchange (FX) revaluation as the US dollar strengthened in the first quarter of the year, particularly against the Japanese Yen, which reduced the US dollar value of Yen-denominated loans.

Year-on-year, the debt stock dropped by US$2.6 billion (or 4.2 percent) due to negative FX revaluation adjustments (US$2.0 billion) and increased investments by residents in Philippine debt papers (US$727 million).

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

External Debt Ratios

“Major external debt indicators remained at comfortable levels in the first quarter of 2013”, the Governor observed. Gross international reserves (GIR) which stood at US$84.0 billion in March 2013, represented cover for short-term (ST) debt of 8.6 times (under the original maturity concept) and 6.4 times (under the remaining maturity concept).  The ratio under the remaining maturity concept is 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, i.e., from April 2013 to March 2014.] 

The external debt ratio or outstanding external debt as a percentage of aggregate output (gross national income or GNI) reflected sustained improvement, declining to 19.1 percent from 22.5 percent a year ago. The same trend is observed based on gross domestic product (GDP), with the ratio down to 22.8 percent in March 2013 from 26.9 percent a year ago as the Philippine economy expanded by a record 7.8 percent in the first quarter of 2013.  The ratio is an indicator of solvency and reflects the country’s strong capacity to repay long-term foreign obligations.

The external debt service ratio (DSR), or the ratio of total principal and interest payments relative to total exports of goods and receipts from services and income (XGSI), is a measure of the sufficiency of FX to meet currently maturing obligations.  The ratio improved to 7.8 percent in March 2013 from 9.4 percent a year ago, and remains well below the 20 to 25 percent international benchmark, indicating a very 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 83.4 percent of total.  [MLT loans are those with maturities longer than one (1) year.]  The larger share of MLT accounts results in lower annual FX requirements for debt payments as loan maturities are spread out over a longer period of time.

The weighted average maturity for all MLT accounts stood at 20.3 years.  Public sector borrowings had a longer average tenor of 22.0 years, compared to 10.5 years for the private sector. 

Short term external debt comprised the 16.6 percent balance of debt stock, and consisted largely of trade credits and bank borrowings.

Total public sector external debt dropped to US$42.9 billion in the first quarter of 2013 from US$45.2 billion in December last year due to: (a) negative FX revaluation adjustments (US$1.4 billion) particularly for debts denominated in Japanese Yen; and (b) net repayments (US$1.3 billion), mainly by the National Government.  A significant drop in NG’s new borrowings from foreign sources, particularly from the capital markets, was observed in the first quarter of 2013 as the government pursued its policy to shift from foreign to domestic sources of funds.  In contrast, private sector debt rose from US$15.2 billion to US$16.1 billion (or by 6.2 percent) due to net loan availments aggregating US$1.0 billion as the business community pursued new/expansion projects amidst encouraging economic developments.

The creditor profile of outstanding debt remained unchanged.  Official creditors (consisting of multilateral institutions and bilateral creditors) continued to have the largest share at 40.0 percent of total debt, followed by foreign holders of bonds and notes (36.1 percent), foreign banks and other financial institutions (17.3 percent) and the 6.6 percent balance were mainly foreign suppliers/exporters. 

The currency composition of external debt was likewise essentially maintained: U.S. dollar-denominated accounts comprised 49.9 percent of total; Japanese Yen accounts, 21.7 percent; and multi-currency loans from the Asian Development Bank and the World Bank, 12.5 percent.  The rest of the accounts representing the 15.9 percent balance were denominated in 18 other currencies.

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