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External Debt Ratios Remain at Comfortable Levels in 2017


Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. announced that outstanding Philippine external debt stood at US$73.1 billion as of end-2017, up by US$730 million (or 1.0 percent) from the US$72.4 billion end-September 2017 level.

The growth in the debt level during the quarter was due largely to the US$1.3 billion increase in the holdings of Philippine debt papers by non-residents, reflecting sustained investor interest in the country. Positive foreign exchange (FX) revaluation adjustments (US$70 million) contributed to the increase in the debt stock as the Philippine peso strengthened against the US Dollar during the last quarter of 2017 due to strong remittances and equity inflows. Net principal repayments (US$643 million) by both public and private sector borrowers had a dampening effect on debt stock.

During the year, private sector accounts declined by US$1.7 billion (or 4.6 percent) from US$37.3 billion in 2016 to US$35.6 billion.  The decline is mainly attributed to the non-bank sector, whose foreign loans decreased from US$22.2 billion a year ago to US$20.2 billion in 2017. This is consistent with the downward trend in loans from commercial sources (banks and other financial institutions, which are main sources of corporate funding), from the US$25.8 billion level recorded a year ago to US$22.5 billion.  The noted decrease also translated to a drop in US Dollar denominated borrowings from US$48.6 billion to US$45.6 billion (or by US$3.0 billion) during the year. These developments may be indicative of Philippine corporate borrowers’ deleveraging from foreign borrowings to minimize foreign exchange risk, among others.

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 2017. Gross international reserves (GIR) stood at US$81.6 billion as of end-2017 and represented 5.7 times cover for short-term (ST) debt under the original maturity concept.

The Debt Service Ratio (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 2017, the ratio improved to 6.2 percent compared to 7.0 percent recorded for the same period a year ago due to higher receipts and lower payments during the 12-month period (January 2017 – December 2017).  The DSR has also 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 expressed as a percentage of annual aggregate output (GNI), remained at 19.4 percent, similar to last quarter’s figure, but reflected an improvement from 20.4 percent a year ago. The same improving trend was observed using GDP as denominator, with the Philippine economy growing by 6.6 percent in the last quarter of 2017 and by
6.7 percent for the entire year.

Debt Profile

The country’s external debt remained largely medium- to long-term (MLT) in nature and represented 80.5 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 17.3 years, with public sector borrowings having a longer average term of 23.1 years compared to 7.8 years for the private sector.

ST liabilities comprised the 19.5 percent balance of debt stock and consisted of bank liabilities, trade credits and others.

Public sector external debt rose to US$37.5 billion from US$37.2 billion in the previous quarter, although share to total declined from 51.4 percent to 51.3 percent. Net principal repayments of US$579 million recorded during the quarter were fully offset by the increase in non-residents’ investment in debt papers issued abroad (US$820 million) as well as upward FX revaluation adjustments (US$50 million). About
US$31.0 billion (82.7 percent) of public sector obligations were NG borrowings.

Private sector debt likewise grew from US$35.1 billion in September 2017 to US$35.6 billion, with share to total increasing from 48.6 percent to 48.7 percent. The increase was due largely to higher investments by non-residents in private sector debt papers (US$485 million). About US$12.3 billion of these accounts were obtained without BSP approval, while capital leases amounted to US$1.2 billion.

Loans from official sources (multilateral and bilateral creditors – US$23.8 billion) and foreign banks and other financial institutions (US$22.5 billion) comprised the largest share of total outstanding debt at 32.5 percent and 30.8 percent, respectively. Borrowings in the form of bonds/notes held by non-residents (US$21.8 billion) accounted for 29.8 percent, while the rest (US$5.0 billion or 6.9 percent) were mostly owed to foreign suppliers/exporters.

In terms of currency mix, the country’s debt stock remained largely denominated in US Dollar (62.4 percent) and Japanese Yen (12.8 percent). US dollar-denominated multi-currency loans from the World Bank and ADB had a 14.0 percent share to total, while the remaining 10.7 percent balance pertained to 17 other currencies, including the Philippine Peso (6.5 percent) and SDR (2.1 percent).

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