Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. announced that the Philippines’ outstanding external debt stood at US$76.4 billion as of end-September 2018, up by US$4.2 billion (or 5.8 percent) from the end-June 2018 level of US$72.2 billion.
The increase in the debt levels during the third quarter of 2018 was attributed to net availments aggregating US$6.0 billion of both public (US$2.2 billion) and private (US$3.8 billion) sectors. The impact of this development was partially offset by the US$1.1 billion negative foreign exchange (FX) revaluation adjustments as the US Dollar strengthened against third currencies, particularly the Philippine Peso (US$787 million) and Japanese Yen (US$262 million). Transfer of credits from non-residents to residents (US$328 million) and adjustments on prior periods’ transactions (US$376 million) due to late reporting also partially offset the increase of the external debt stock.
Year-on-year, the debt stock rose by US$4.0 billion (or 5.6 percent) from US$72.4 billion in September 2017 as new borrowings exceeded loan repayments by US$4.4 billion. Prior periods’ adjustments (US$585 million) and increase in non-resident holdings of Philippine debt papers issued offshore (US$195 million) further increased the debt levels, but the negative FX revaluation adjustments (US$1.1 billion) partially reduced the upward impact on debt obligations.
The debt stock also grew from the end-2017 level of US$73.1 billion (or by 4.5 percent) due largely to net availments (US$5.0 billion) by both public and private sectors as the National Government (NG) continued to expand financing for its infrastructure development and social spending programs and private firms’ decision to increase working capital, expand funding base, and extend term liabilities. Despite the increase in the foreign obligations, the Philippines’ external debt remain within prudent and manageable levels.
External debt refers to all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics.
As of end-September 2018, the maturity profile of the country’s external debt remained predominantly medium- and long-term (MLT) [i.e., those with maturities longer than one year], with its share to total external debt at 82.4 percent. Short-term (ST) loans [or those with maturities of up to one year] accounted for the 17.6 percent balance of the debt stock and consisted of bank liabilities, trade credits and others. The weighted average maturity of MLT accounts stood at 17.0 years, with public sector borrowings having a longer average term of 21.2 years compared to 7.7 years for the private sector. This means that FX requirements for debt payments are well spread out and, thus, more manageable.
Public sector borrowings stood at US$39.5 billion (or 51.8 percent of total debt stock), higher by US$1.6 billion from the US$38.0 billion level in June 2018. The increase was due mainly from net availments of US$2.1 billion as the NG issued JPY154.2 billion (or US$1.4 billion) Samurai Bonds due 2021, 2023 and 2028 and availed US$911 million from its multilateral credits.
Private sector debt also grew from US$34.2 billion (47.4 percent) during the previous quarter to US$36.9 billion (48.2 percent) arising from net availments (US$3.8 billion), which was partially offset by the downward FX revaluation adjustments (US$767 million) and prior periods’ adjustments (US$361 million). Private sector foreign borrowings increased during the third quarter of 2018 due to commercial banks issuing notes offshore to diversify sources of liquidity and extend term liabilities as well as other private firms’ decision to expand working capital amid strong domestic demand.
Loans from official sources (multilateral and bilateral creditors – US$24.8 billion) had the largest share (32.4 percent) of total outstanding debt, followed by foreign holders of bonds and notes (29.8 percent), and obligations to foreign banks and other financial institutions (29.6 percent); the rest (8.1 percent) were owed to other creditor types (mainly suppliers/exporters). The creditor mix continues to be well diversified, demonstrating the country’s ability to tap varied sources of financing (both official and commercial sources), which gives the country sufficient flexibility to choose from a broad range of fund sources.
In terms of currency mix, the country’s debt stock remained largely denominated in US Dollar (60.9 percent) and Japanese Yen (13.4 percent). US dollar-denominated multi-currency loans from the World Bank and ADB had a 14.9 percent share to total, while the remaining 10.8 percent balance pertained to 15 other currencies, including the Philippine Peso (5.8 percent), Euro (2.2 percent) and SDR (1.9 percent).
External Debt Ratios
The Governor further stated that key external debt indicators remained at prudent levels despite the rise in external debt. Gross International Reserves (GIR) stood at US$74.9 billion as of end-September 2018 and represented 5.6 times cover for 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 debt obligations. As of end-September 2018, the ratio increased to 6.5 percent from 6.0 percent recorded for the same period a year ago due to larger payments made from January to September 2018. The DSR has consistently remained at single digit levels, 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 Gross National Income (GNI), increased to 19.6 percent as of end-September 2018 from 18.7 percent last quarter and 19.4 percent in September 2017 due to the higher debt stock. The same trend was observed using Gross Domestic Product. The ratio indicates the country’s sustained strong position to service foreign borrowings in the medium to long-term.