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

09.16.2016

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that outstanding Philippine external debt stood at US$77.7 billion as of end-June 2016, marginally up by US$81 million (or 0.1 percent) from the end-March 2016 level of US$77.6 billion.

The increase was attributed to foreign exchange (FX) revaluation adjustments (US$821 million) as the US Dollar weakened, particularly against the Japanese Yen, whose impact was offset by net repayments (US$680 million), previous periods’ adjustments due to late reporting (US$44 million) and reduction in non-resident holdings of Philippine debt papers (US$17 million).

Year-on-year, the debt stock rose by US$2.7 billion (or 3.6 percent) from US$75.0 billion in June 2015 due to FX revaluation, and other adjustments in previous periods (US$2.6 billion), as well as net availments (US$561 million). A US$424 million decline in non-resident investments in Philippine debt papers issued offshore partly mitigated the upward trend in debt stock.

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 comfortable levels in the second quarter of 2016. Gross international reserves stood at US$85.3 billion as of end-June 2016, much higher than the US$83.0 billion level in March 2016. The amount represents 5.9 times cover for short-term (ST) debt under the original maturity concept.

The DSR, which relates principal and interest payments (debt service burden or DSB) 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. The current ratio of 6.2 percent is slightly higher than the 6.1 percent level in end-March 2016 due to a larger increase in DSB (as annualized from US$6.1 billion to US$6.3 billion) compared to the increase in receipts (from US$100.3 billion during the 12-month period or annualized [April 2015 – March 2016] to US$100.8 billion [July 2015 to June 2016]).  Year-on-year, the ratio also increased from 5.9 percent in June 2015 due to lower receipts and higher payments. Nevertheless, the DSR has consistently remained at single digit levels since 2010 and well below the international benchmark range of 20.0 to 25.0 percent.

The external debt ratio, or total outstanding debt (EDT) expressed as a percentage of annual aggregate output (GNI), improved to 21.7 percent from 21.9 percent level in March 2016, but was higher than the 21.3 percent level recorded a year ago. Using GDP as denominator, the ratio likewise improved to 26.2 percent from 26.5 percent in end-March 2016 as the economy posted a 7.0 percent growth in the second quarter of 2016 (from 5.9 percent in the same period last year).  Year-on-year, however, the ratio is higher than the 25.7 percent level in June 2015 due to a larger growth in the debt stock (from US$75.0 billion in June 2015 to US$77.7 billion by
June 2016).

Debt Profile

The bulk (81.3 percent or US$63.2 billion) of the country’s external debt continued to be largely medium- to long-term (MLT) in nature [i.e., those with original maturities longer than one (1) year].  This means that FX requirements for debt payments are well spread out and, thus, manageable.

The weighted average maturity for all MLT accounts improved to 17.1 years by end-June 2016, from the 16.9 years in the preceding quarter.  Public sector debt was noted to have a longer average term of 23.0 years compared to 8.0 years for the private sector.

ST liabilities accounted for the 18.7 percent balance of debt stock and consisted of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposit liabilities.

Public sector borrowings stood at US$39.4 billion (or 50.7 percent of total debt stock), higher by US$440 million from the US$38.9 billion level in March due to FX revaluation adjustments (US$822 million), which was slightly mitigated by net repayments (US$229 million) and a decline in non-resident investments in Philippine debt papers (US$151 million).

On the other hand, private sector debt aggregated US$38.4 billion (49.4 percent of total), down by US$360 million from March 2016 due largely to net repayments (US$450 million), which was partly mitigated by an increase in non-resident holdings of private sector debt papers issued offshore (US$134 million).

Obligations to foreign banks and other financial institutions continued to have the largest share (32.6 percent) of outstanding debt, followed by official sources (multilateral and bilateral creditors – 31.7 percent).  Borrowings in the form of bonds/notes held by non-residents accounted for 29.1 percent, while the 6.6 percent balance were owed to other creditor types (mainly suppliers/exporters).

The country’s external debt stock remained largely denominated in US Dollar (63.0 percent) and Japanese Yen (12.5 percent). US dollar-denominated multi-currency loans from the World Bank and the Asian Development Bank represented 12.5 percent of total, while the 10.9 percent balance pertained to 17 other currencies, including the Philippine Peso1 (7.1 percent), SDR (2.2 percent), and the Euro (1.1 percent). 

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1 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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