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Outstanding External Debt Declines Further in Q1 2017

06.16.2017

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that outstanding Philippine external debt stood US$73.8 billion as of end-March 2017, reflecting a decline of US$958 million (or 1.3 percent) from the US$74.8 billion end-December 2016 level.

The decline in the debt levels during the first quarter resulted mainly from: (a) prior periods’ adjustments (negative US$673 million) due to late reporting of principal payments; (b) transfer of Philippine debt papers from non-residents to residents (US$497 million); and (c) net principal repayments of US$255 million. The downward impact of these developments on the debt stock was partially offset by the positive foreign exchange (FX) revaluation adjustments (US$466 million) as the Japanese Yen strengthened against the US Dollar.

On a year-on-year basis, the debt stock likewise dropped by US$3.8 billion from the US$77.6 billion level in March 2016 due to: (a) net principal repayments by both the public and private sectors (US$2.1 billion); (b) previous periods’ audit adjustments (negative US$1.5 billion) due to late reporting; and (c) negative FX revaluation adjustments (US$383 million).  The full downward impact of these factors on the debt stock was slightly offset by a modest increase in non-residents’ investments in Philippine debt papers issued offshore (US$126 million) during the period.

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 during the first quarter of 2017. Gross international reserves stood at US$80.9 billion as of end-March 2017 and represents 5.4 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-March 2017, the ratio improved to 8.7 percent from the 9.2 percent recorded for the same period a year ago; quarter-on-quarter, however, the DSR increased from 6.9 percent as of end-2016 due to large payments during the first quarter of 2017, primarily bond redemptions at maturity by: (a) National Government (NG, US$523 million); (b) two (2) universal banks (total of US$575 million); (c) a mining company (US$300 million); and (d) a telecommunications company (US$228 million).  Nevertheless, the DSR has consistently remained at single digit level, and 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 to 20.0 percent from 20.4 percent in the fourth quarter of 2016 and 21.9 percent a year ago. The same trend was observed using GDP as denominator, with the Philippine economy growing by 6.4 percent in the first quarter of 2017.

Debt Profile

The country’s external debt remained heavily biased towards medium- to long-term (MLT) accounts which represented 79.6 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 17.4 years, with public sector borrowings having a longer average term of 23.1 years compared to 8.1 years for the private sector. 

ST liabilities comprised the 20.4 percent balance of debt stock and consisted of bank liabilities, trade credits and other non-bank liabilities.

Public sector external debt stood at US$37.7 billion (or 51.0 percent of total debt stock), slightly higher than the US$37.5 billion (50.1 percent of total) in the previous quarter due largely to: (a) net availments of US$637 million, mainly by the NG (US$583 million) and the Development Bank of the Philippines (US$251 million); and (b) upward FX revaluation adjustments (US$461 million).  These were partly mitigated by the US$917 million decline in non-residents’ investments in debt papers issued offshore by the public sector.  About US$30.6 billion (81.3 percent of public sector obligations) were NG borrowings.

Private sector debt, on the other hand, aggregating US$36.1 billion (49.0 percent of total) were down by US$1.1 billion quarter on quarter due to: (a) net repayments of US$893 million; and (b) previous periods’ adjustments (negative US$680 million).  Increased non-resident holdings of private sector debt papers issued offshore (US$420 million) partially offset the downward pressures on private sector debt.  About US$13.2 billion of these accounts were borrowings without BSP approval (including capital leases of US$1.3 billion).

Obligations to foreign banks and other financial institutions (US$24.9 billion) comprised the largest share of total outstanding debt at 33.8 percent, followed by official sources (multilateral and bilateral creditors – US$23.6 billion or 32.0 percent).  Borrowings in the form of bonds/notes held by non-residents (US$20.5 billion) accounted for 27.8 percent, while the rest (US$4.7 billion or 6.4 percent) were mostly owed to foreign suppliers/exporters.

In terms of currency mix, the bulk of the country’s debt stock remained denominated in US Dollar (63.4 percent) and Japanese Yen (12.6 percent). US Dollar-denominated multi-currency loans from the World Bank and Asian Development Bank had a 13.6 percent share to total, while the remaining 10.5 percent balance consisted of 17 other currencies, including the Philippine Peso (6.5 percent),
SDR (2.1 percent), and the Euro (1.2 percent).

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