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External Debt Ratios Remain At Prudent Levels Under a New Reporting Framework for External Debt

03.20.2015

Bangko Sentral ng Pilipinas (BSP) Officer-in-Charge Nestor A. Espenilla, Jr. announced that the BSP has implemented a new framework for reporting the country’s external debt statistics, based on the latest External Debt Guide and the International Monetary Fund’s (IMF) Balance of Payments (BOP) and International Investment Position (IIP) Manual, 6th Edition.  This is part of the BSP’s continuing initiatives to align its statistics and methodologies with international standards.  Certain changes to the BOP report following the latest BOP and IIP Manual were previously adopted.

Based on the new framework, outstanding Philippine external debt as of end-2014 stood at US$77.7 billion, after inclusion of other accounts1 totalling US$20 billion which were previously disclosed in footnotes to the official debt statistics. The figure reflects a decline of US$0.80 billion from the revised end-2013 figure of US$78.5 billion. Under the old reporting framework, the end-2014 figure would have been US$57.6 billion, likewise lower (by US$ 0.89 billion) compared to US$58.5 billion in 2013. (External debt refers to all types of borrowings by Philippine residents from non-residents  following the residency criterion for international statistics, such as the Balance of Payments.)

The new reporting framework was approved by the Monetary Board in the second half of 2014, considering changes in the regulatory treatment of inter-office accounts of foreign banks in the Philippines in 2013 (to take effect in 2015), and the publication of the latest international External Debt Guide in May 2014. The implementation of the enhancements were timed to coincide with the release of external debt data for end-2014 to allow compilation of detailed data, their proper categorization, and revision of the historical data series for 2005 to 2013.

Compared to the US$77.1 billion September 2014 figure under the revised framework, the debt level by the close of 2014 was higher by US$579 million (or 0.8 percent). The increase was due to net inflows of US$2.2 billion, mainly from accounts of private banks, reflecting brisk business activities arising from positive domestic developments.  The upward impact of these inflows was partially offset by the following factors: (a) negative foreign exchange (FX) revaluation adjustments (US$1.1 billion) due to strengthening of the US Dollar against most third currencies, particularly the Japanese Yen; (b) higher investments by residents in Philippine debt papers (US$446 million); and (c) past periods’ adjustments due to audit findings and late submission of data by reporting parties (negative US$110 million).

External Debt Ratios

“Even with the higher debt level brought about by these recent enhancements/modifications, debt indicators were observed to have remained at very prudent levels”, the Officer-in-Charge continued.

Major External Debt Indicators (under new and old concepts)   

 

Dec 2014 

Sep 2014

Dec 2013

Gross International Reserves (GIR)/Short-term (ST) debt:
(Original maturity concept)

4.9 (7.1) 

5.6 (8.4) 

4.9 (7.4)

Debt Service Ratio (DSR)2 (in percent)

6.4 (6.4)

6.6 (6.6)

8.2 (8.2)

Total outstanding debt (EDT)/
Gross National Income (GNI)3 (in percent)

22.7 (16.9)

23.0 (17.2) 

24.1 (17.9)

EDT/Gross Domestic Product (GDP)c (in percent)

27.3 (20.2)

27.6 (20.7)

28.8 (21.5)

Gross international reserves (GIR) of US$79.5 billion as of end-2014 represented 4.9 times cover for short-term debt under the original maturity concept.

The external debt ratio (a solvency indicator), or outstanding external debt expressed as a percentage of gross national income (GNI), continued to show an improving trend and was recorded at 22.7 percent from 23.0 percent in September 2014 and 24.1 percent in December 2013.  The same trend was observed using gross domestic product as denominator, as the Philippine economy grew by 6.9 percent in the last quarter of 2014 and 6.1 percent for the entire 2014.  The ratio is an indicator of the country’s capacity to service foreign obligations.

The external debt service ratio (DSR), or total principal and interest payments as a percentage of exports of goods, receipts from services and primary income, is a measure of the adequacy of the country’s FX earnings to meet maturing obligations.  The ratio likewise further improved to 6.4 percent from 6.6 percent in September 2014 and 8.2 percent a year ago due to higher receipts and lower payments in 2014. 

Debt Profile

The external debt portfolio remained predominantly medium- to long-term (MLT) in tenor, with MLT accounts accounting for 79.1 percent of total, keeping funding requirements for debt servicing at manageable levels since payments are spread out over a longer period of time.  [MLT accounts are those with maturities longer than one (1) year.] 

The weighted average maturity for all MLT accounts was estimated at 16.8 years, with public sector accounts having a longer average tenor of 21.8 years compared to 8.7 years for the private sector.
ST external debt comprised the 20.9 percent balance of the debt stock, and consisted largely of trade credits and bank obligations including deposit liabilities.

Public sector external debt was slightly lower at US$39.3 billion from the US$40.7 billion level in September 2014, due largely to negative FX revaluation adjustments (US$1.1 billion) as the US Dollar strengthened against most currencies.  In contrast, private sector debt rose to US$38.3 billion from US$36.4 billion as availments (largely by banks) exceeded principal repayments.

In terms of credit sources, the share of foreign holders of bonds and notes accounted for 32.2 percent of total, closely followed by foreign banks and other financial institutions (31.2 percent), official creditors - multilateral institutions and bilateral creditors: 29.7 percent, and the rest (6.9 percent) pertaining mostly to foreign suppliers/exporters.

The country’s debt stock remained largely denominated in US Dollar (64.6 percent), followed by the Japanese Yen (12.1 percent); multi-currency loans from the Asian Development Bank and the World Bank comprised 10.0 percent of total, while the rest of the accounts (13.3 percent) were denominated in 19 other currencies.

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1 These consist of the following :
           a. Inter-office accounts of foreign banks operating in the Philippines (“Due to Head Office/Branches/Agencies Abroad” accounts) which are considered by BSP as quasi-equity accounts; and
           b. Private sector obligations that were obtained without BSP approval/registration and, thus, cannot be paid using foreign exchange resources of the banking system, as well as obligations under capital lease arrangements
2 Based on annual/annualized debt service burden (DSB) and exports of goods and receipts from services and primary income (XGSI) data using the BPM6
3 Based on annual/annualized GNI and GDP

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