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External Debt Ratios Remain at Comfortable Levels in First Quarter of 2016

06.17.2016

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that outstanding Philippine external debt stood at US$77.6 billion as of end-March 2016, up by US$166 million (or 0.2 percent) from the end-2015 level of US$77.5 billion.

The increase was attributed to: (a) foreign exchange (FX) revaluation adjustments (US$814 million) as the US Dollar weakened, particularly against the Japanese Yen; (b) previous periods’ adjustments and increased investments in Philippine debt papers by non-resident investors (US$833 million). Net repayments of US$1.5 billion (mainly by banks) partly mitigated the upward impact of these developments on debt stock.

Year-on-year, the debt stock rose by US$2.3 billion (or 3.1 percent) from US$75.3 billion in March 2015 due to: (a) net availments (US$2.1 billion); and (b) FX revaluation and other adjustments in previous periods (US$1.7 billion), which were partially offset by the US$1.4 billion decline in non-resident investments in Philippine debt papers.

External debt refers to all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics.

External Debt Ratios

The Governor further stated that key external debt indicators remained at very comfortable levels in the first quarter of 2016. Gross international reserves stood at US$83.0 billion as of end-March 2016, which is higher than the US$80.7 billion level in December 2015. This amount represents cover of 5.8 times for short-term (ST) debt under the original maturity concept.

The external debt ratio or total outstanding debt (EDT) expressed as a percentage of annual aggregate output (GNI) is a solvency indicator. The ratio remained at the end-2015 level of 21.9 percent; using GDP as denominator, the ratio was likewise unchanged at 26.5 percent even as the economy posted a 6.9 percent growth in the first quarter of 2016 (from 5.0 percent in the previous year) as external debt level also grew during the reference period.

The debt service ratio (DSR), which relates principal and interest payments to exports of goods and receipts from services and primary income, is a measure of adequacy of the country’s FX earnings to meet maturing obligations. While the current ratio of 5.9 percent is slightly higher than the 5.3 percent in December 2015, the DSR has consistently remained well below the international benchmark range of 20.0 to 25.0 percent.

Debt Profile

The bulk (81.6 percent of US$63.3 billion) of the country’s external debt continued to be largely medium- to long-term (MLT) [i.e., those with original maturities longer than one (1) year] in tenor.  This means that FX requirements for debt payments are well spread out and more manageable.

The weighted average maturity for all MLT accounts stood at 16.9 years, an improvement over the 16.5 years average as of December 2015.  Public sector debt was noted to have a longer average term of 22.8 years compared to 8.0 years for the private sector.

ST liabilities accounted for the 18.4 percent balance of debt stock and consisted of bank borrowings, intercompany accounts of foreign bank branches, trade credits, deposit liabilities, and other non-trade accounts (including bridge financing facilities).

Public sector external debt stood at US$38.9 billion (or 50.1 percent of total debt stock, slightly higher than the US$38.3 billion (49.4 percent of total level) as of end-2015 due to FX revaluation adjustments (US$765 million) arising from a weaker US Dollar.

Private sector debt, on the other hand, stood at US$38.7 billion (49.9 percent of total), and was down by US$489 million quarter on quarter, due to net repayments of US$1.3 billion mainly by banks, which was partly mitigated by previous periods’ adjustments and increased non-resident holdings of private sector debt papers issued offshore (US$758 million).

Obligations to foreign banks and other financial institutions had the largest share (32.6 percent) in outstanding debt, followed by official sources (multilateral and bilateral creditors – 31.5 percent).  Borrowings in the form of bonds/notes held by non-residents accounted for 29.4 percent, while the
6.5 percent balance were mostly owed to foreign suppliers/exporters.

The country’s debt stock remained largely denominated in US Dollar (63.0 percent) and Japanese Yen (12.4 percent). US dollar-denominated multi-currency loans from the World Bank and the Asian Development Bank represented 12.5 percent of total; the 12.1 percent balance pertained to 17 other currencies, including the Philippine Pesoa (8.1 percent), SDR (2.2 percent), and the Euro (1.2 percent). 

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a Based on the balance of payments definition, debt held by non-residents even if denominated In Philippine Peso are considered external debt.

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