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External Debt Ratios Remain at Comfortable Levels in 2016

03.17.2017

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that outstanding Philippine external debt stood US$74.8 billion as of end-2016, reflecting a decline of US$1.9 billion (or 2.4 percent) from the US$76.6 billion end-September 2016 level.

This development is attributed to: (a) downward foreign exchange (FX) revaluation adjustments of US$1.8 billion as the US Dollar strengthened against third currencies, particularly the Japanese Yen (US$1.4 billion); (b) net principal repayments of US$611 million, mainly by the National Government (NG) and the Power Sector Assets and Liabilities Management Corporation (PSALM); and (c) prior periods’ audit adjustments (negative US$73 million).  The downward impact of these developments on the debt stock was partially offset by the US$591 million transfer of Philippine debt papers from residents to non-residents which had the effect of increasing outstanding external debt.

On a year-on-year basis, the debt stock likewise dropped by US$2.7 billion from the US$77.5 billion level in 2015 due to: (a) net principal repayments by both the public and private sectors (US$3.4 billion); (b) previous periods’ audit adjustments (negative US$168 million) due to late reporting; and (c) negative (downward) foreign exchange revaluation adjustments (US$36 million).  However, the full downward impact of these factors on debt stock was partly offset by an increase in non-residents’ investments in Philippine debt papers issued offshore (US$846 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 at the close of 2016. Gross international reserves stood at US$80.7 billion as of end-2016 and represents 5.6 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. As of end-December 2016, the ratio increased to 6.9 percent due largely to the increase in payments (from US$5.6 billion in 2015 to US$7.1 billion). Large principal payments in 2016 included the full redemption of bonds at maturity by the following: a) PSALM (US$638 million); b) NG (EUR500 million or about US$557 million); and c) two (2) universal banks (aggregating US$425 million).  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), continued to improve by year-end to 20.4 percent from 21.1 percent in the third quarter of 2016, and 21.9 percent as of end-2015. The same trend was observed using GDP as denominator, with the Philippine economy growing by 6.6 percent in the last quarter of 2016 and by 6.8 percent for the entire year.

Debt Profile

The country’s external debt remained heavily biased towards medium- to long-term (MLT) accounts which represented 80.6 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 of MLT accounts stood at 16.9 years, with public sector borrowings having a longer average term of 22.9 years compared to 7.9 years for the private sector.

ST liabilities comprised the 19.4 percent balance of debt stock and consisted of bank liabilities, trade credits and other non-bank liabilities.

Public sector borrowings were down to US$37.5 billion (or by US$1.8 billion) from US$39.3 billion in September 2016, with share to total correspondingly declining from 51.3 percent to 50.1 percent.  This was due largely to negative FX revaluation adjustments (US$1.7 billion) and net principal repayments (US$896 million), which were partly offset by the increase in non-residents’ investments in public sector debt papers (US$749 million).  About US$30.5 billion (81.5 percent of public sector obligations) were NG borrowings. 

Private sector debt likewise declined, albeit by a smaller amount, from US$37.33 billion in September 2016 to US$37.29 billion, although share to total increased to 49.9 percent from 48.7 percent due to the substantial drop in public sector accounts.  During the fourth quarter of 2016, the following were noted for private sector accounts: (a) net availments (US$286 million); (b) increase in resident holdings of private sector debt papers (US$158 million); (c) downward FX revaluation adjustments (US$90 million); and (d) prior periods’ adjustments due to late reporting (negative US$74 million). 

Obligations to foreign banks and other financial institutions (US$25.8 billion) comprised the largest share of outstanding debt at 34.5 percent, followed by official sources (multilateral and bilateral creditors – US$22.9 billion or 30.6 percent).  Borrowings in the form of bonds/notes held by non-residents (US$22.4 billion) accounted for 29.3 percent, while the rest (US$4.2 billion or 5.6 percent) were owed to foreign suppliers/exporters.

The country’s external debt stock remained largely denominated in US Dollar (65.1 percent) and Japanese Yen (12.0 percent). US Dollar-denominated multi-currency loans from the World Bank and Asian Development Bank had a 12.8 percent share to total, while the remaining 10.1 percent balance consisted of 17 other currencies, including the Philippine Peso (6.3 percent), SDR (2.1 percent), and the Euro (1.1 percent). 

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