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


Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that outstanding Philippine external debt stood at US$76.6 billion as of end-September 2016, lower by US$1.1 billion (or 1.4 percent) from the end-June 2016 level of US$77.7 billion.

The decline in the debt levels during the third quarter resulted mainly from: (a) negative prior period adjustments (US$661 million) due to late reporting of principal payments; and (b) net repayments by both public and private sectors (US$582 million).  The downward impact of these developments were partially offset by the following: (a) foreign exchange (FX) revaluation adjustments (US$96 million) as the Japanese Yen strengthened against the US Dollar; and (b) transfer of Philippine debt papers from residents to non-residents (US$49 million).

On the other hand, the debt stock rose year-on-year by US$1.0 billion (or 1.3 percent) from US$75.6 billion due to FX revaluation adjustments (US$1.6 billion) and increased non-resident investments in Philippine debt papers issued offshore (US$428 million).  The upward impact of these accounts on the debt level was partly mitigated by the net repayments (US$981 million) and previous periods’ adjustments due to late reporting (negative US$55 million).

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 third quarter of 2016. Gross international reserves stood at US$86.1 billion as of end-September 2016, higher than the US$85.3 billion level in June 2016 and represents 6.1 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 6.6 percent year-to-date DSR in September 2016 is higher compared to the 5.6 percent DSR for January to September 2015 due to a larger growth in DSB compared to the increase in receipts.  Nevertheless, the DSR has consistently remained well below the international benchmark range of 20.0 to 25.0 percent.

The external debt ratio (a solvency indicator), or total outstanding debt (EDT) expressed as a percentage of annual aggregate output (GNI), improved to 21.1 percent from 21.7 percent in June 2016 and 21.5 percent a year ago.  The same improvement was observed using GDP as denominator as the economy grew by 7.1 percent in the third quarter of 2016 (higher than the 7.0 percent in the previous quarter and 6.0 percent a year ago). 

Debt Profile

The country’s external debt remained heavily biased towards medium- to long-term (MLT) accounts which represented 81.6 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 improved to 17.5 years by end-September 2016, from the 17.1 years in the preceding quarter, with public sector debt having a longer average term of 23.5 years compared to 8.1 years for the private sector.

ST liabilities comprised the 18.4 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$39.3 billion, down by US$74 million from US$39.4 billion in June 2016, although share to total increased to 51.3 percent from 50.7 percent.  The decline in level was due largely to net repayments of US$161 million and an increase in residents’ investments in Philippine debt papers (US$27 million), whose impact was partly offset by FX revaluation adjustments (US$121 million). 

Private sector debt declined by a larger amount from US$38.4 billion (49.4 percent) to US$37.3 billion (48.7 percent) which pushed the share of public sector accounts to total external debt higher.  This development was mainly attributed to: (a) net repayments during the quarter (US$421 million); (b) previous periods’ adjustments (negative US$653 million) due to late reporting of loan payments; and (c) FX revaluation adjustments (negative US$25 million).  An increase in non-resident holdings of private sector debt papers (US$75 million) partly mitigated the decline in private sector debt.

Obligations to foreign banks and other financial institutions continued to have the largest share (33.2 percent) of outstanding debt, followed by official sources (multilateral and bilateral creditors - 31.6 percent of total), and foreign holders of bonds and notes (29.2 percent); the rest (6.0 percent) were owed to other creditor types (mainly suppliers/exporters).

The country’s external debt stock remained largely denominated in US Dollar (63.2 percent) and Japanese Yen (13.8 percent). US dollar-denominated multi-currency loans from the World Bank and the Asian Development Bank represented 12.6 percent of total, while the 10.4 percent balance pertained to 18 other currencies, including the Philippine Pesoa (6.6 percent), SDR (2.2 percent), and the Euro (1.1 percent).

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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