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Outstanding External Debt Drops in Q1 2015


Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that the outstanding Philippine external debt stood at US$75.3 billion at end-March 2015, down by US$2.4 billion (or 3.0 percent) from the US$77.7 billion level at end-2014. The decline was attributed to net repayments (US$2.0 billion), mainly by banks.  Negative foreign exchange (FX) revaluation (US$220 million) arising from the strengthening of the US Dollar against other currencies, and an increase in residents’ investments in Philippine debt papers (US$100 million) also contributed to the decline in the debt stock.
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.

On a year-on-year basis, the debt stock likewise reflected a decline of US$3.6 billion (or 4.6 percent) from US$78.9 billion in March 2014 due to: (a) negative FX revaluation adjustments (US$2.2 billion); (b) net repayments (US$1.9 billion); and (c) previous periods’ adjustments (negative US$220 million) due to audit findings as well as late reporting of transactions.  However, the downward pressure of these developments on the debt level was mitigated by the rise in non-residents’ investments in Philippine debt papers (US$704 million).

External Debt Ratios

“Key external debt indicators were observed to have remained at very prudent levels in the first quarter of 2015”, the Governor continued. Gross international reserves (GIR) of US$80.5 billion as of end-March 2015 represented 6.1 times cover for short-term (ST) debt under the original maturity concept compared to 4.9 times and 4.7 times as of end-December and March 2014.

The external debt ratio (a solvency indicator), or outstanding external debt expressed as a percentage of gross national income (GNI), continued to exhibit an improving trend and was recorded at 21.5 percent for the first quarter of 2015 from 22.5 percent last quarter and 23.9 percent a year ago.  The same trend was observed using GDP as denominator, as the debt stock dropped by US$2.4 billion vis-à-vis the
5.2 percent growth of the Philippine economy in the first quarter of 2015.  The ratio is an indicator of the country’s capacity to service foreign obligations.

 The 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 further improved to 6.3 percent in March 2015 from 6.4 percent in December 2014 and 7.3 percent in March 2014 due to higher receipts and lower payments during the year. 

Debt Profile

The country’s external debt remained heavily biased towards medium- to long-term (MLT) accounts which represented 82.6 percent of total. This means that FX requirements for debt payments are well spread out and, thus, more manageable. [MLT accounts are those with maturities longer than one (1) year.]

The weighted average maturity for all MLT accounts stood at 17.0 years, with public sector borrowings having a longer average tenor of 22.2 years compared to 8.6 years for the private sector.
ST external debt comprised the 17.4 percent balance of the debt stock, consisting largely of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposits of non-residents.

Public sector external debt stood at US$39.1 billion (or 52.0 percent of total debt stock), slightly lower than the US$39.3 billion level (50.7 percent) as of end-2014 due mainly to negative FX revaluation adjustments (US$209 million) as the US Dollar strengthened against most currencies. 

Private sector debt likewise declined to US$36.2 billion from US$38.3 billion a quarter ago due largely to the net repayments of bank liabilities (US$2.9 billion).

Foreign holders of Philippine bonds and notes continued to account for the largest share (33.5 percent) of total external debt, followed by official sources (multilateral and bilateral creditors – 30.4 percent), foreign banks and other financial institutions (28.9 percent), and foreign suppliers/exporters (7.2 percent).

The country’s debt stock remained largely denominated in US Dollar (64.6 percent), and Japanese Yen (12.7 percent).  US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank comprised 10.4 percent of total, while the remaining 12.3 percent pertained to 17 other currencies.

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