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Philippine External Debt Declines in 2nd Quarter

09.20.2013

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. announced that the country’s outstanding external debt approved/registered by the BSP has declined by US$1.0 billion (or 1.8 percent) to US$58.0 billion as of end-June 2013 from US$59.0 billion in March.  This was largely a result of net loan repayments (largely by the public sector) as well as negative foreign exchange revaluation adjustments as the US dollar strengthened, particularly against the Japanese Yen.  On a year-on-year basis, the trend was the same, with debt stock reflecting a reduction of US$3.2 billion (or 5.3 percent) from US$61.2 billion in June 2012.

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

External Debt Ratios

There was also a general improvement in external debt ratios which remained at very prudent levels, the Governor observed.  Gross international reserves (GIR) stood at US$81.3 billion as of 30 June 2013, which is equivalent to 8.5 times the level of short-term (ST) debt under the original maturity concept and 6.2 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 July 2013 to June 2014.] 

The external debt ratio or outstanding external debt as a percentage of aggregate output (gross national income or GNI) is a solvency indicator that measures capacity to repay obligations over a long-term horizon.  The ratio has continued to strengthen, declining further to 18.3 percent in June from 19.1 percent in the first quarter of the year, and from 21.8 percent a year ago.  The same trend is observed based on gross domestic product (GDP), with the ratio down to 21.8 percent in the second quarter from 22.8 percent in March and 26.1 percent in June 2012, as the Philippine economy expanded by 7.5 percent in the second quarter of the year while outstanding debt declined. 

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), likewise exhibited sustained improvement, declining to 7.5 percent in the second quarter from 7.9 percent in March 2013 and 9.2 percent a year ago.  The ratio, which measures sufficiency of foreign exchange available to meet currently maturing obligations, has remained well below the 20 to 25 percent international benchmark, attesting to the country’s strong liquidity posture. 

Debt Profile

The debt portfolio continues to be heavily biased towards medium- to long-term (MLT) maturities, with debt payments scheduled over a longer time horizon, translating to more manageable levels of foreign exchange requirements for loan servicing.  As of June 2013, MLT debt represented 83.5 percent of total outstanding external liabilities.

The weighted average maturity for all MLT accounts stood at 20.2 years with public sector borrowings having a longer average tenor of 21.9 years compared to 10.3 years for the private sector. 
Short-term external debt accounted for the 16.5 percent balance of debt stock, and consisted largely of trade credits and bank borrowings.

Total public sector debt was recorded at US$42.0 billion at the close of June, lower than the US$42.9 billion level in the previous quarter due to net repayments as the National Government shifted its borrowings to domestic sources, as well as the weakening of the Japanese Yen against the US dollar, which correspondingly reduced the value of Yen loans in US dollar terms.  Private sector debt similarly declined, from US$16.11 billion to US$16.06 billion due to negative foreign exchange revaluation adjustments and positive audit adjustments.

In terms of fund resources, official creditors (consisting of multilateral and bilateral creditors) had the largest exposure at 39.3 percent of total debt.  Borrowings in the form of bonds/notes accounted for 36.5 percent, foreign banks and other financial institutions - 16.8 percent, with the 7.4 percent balance pertaining mainly to foreign suppliers/exporters. 

The currency mix of foreign debt was essentially unchanged, with U.S. dollar-denominated accounts comprising 50.8 percent, followed by the Japanese Yen - 21.0 percent, multi-currency loans from the World Bank and the Asian Development Bank - 12.5 percent, and 18 other currencies - 15.8 percent.

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