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The Philippines' External Debt Ratios Remain at Prudent Levels even as External Debt Rises in the Fourth Quarter 2019

03.20.2020

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, announced that the Philippines’ outstanding external debt stood at US$83.6 billion as of end-2019, up by US$944 million (or 1.1 percent)  from  the  US$82.7 billion  level  as  of  end-September 2019.

The rise in the debt stock during the fourth quarter was brought about by the increase in non-residents’ investments in Philippine debt papers issued offshore of US$507 million. The upbeat investor sentiment was reflected in the generally narrower bond spreads due to positive external developments such as the initial trade deals between the US and China at the  latter  part  of  the  year.  Net  availments  of US$317 million (largely attributed to oil importation) and prior periods’ adjustments of US$150 million further contributed to the increase of the debt stock. These were partially offset by foreign exchange (FX) revaluation of US$29 million.

Year-on-year, the debt stock increased by US$4.7 billion (or by 5.9 percent) brought about by: (a) net availments (US$3.7 billion); (b) prior periods’ adjustments (US$954 million); and (c) FX revaluation adjustments (US$170 million). This upward impact on the debt stock was partially offset by the transfer of Philippine debt papers from non-residents to residents (US$197 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 prudent levels despite the rise in external debt. Gross International Reserves stood at US$87.8 billion as of end-December 2019 and represented 5.1 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 obligations. As of end-December 2019, the ratio slightly improved to 6.5 percent from 6.6 percent for the same period a year ago. The DSR has consistently remained at single digit levels.

Total outstanding debt (EDT) expressed as a percentage of annual aggregate output [Gross National Income (GNI) or Gross Domestic Product (GDP)] is a solvency indicator.  EDT  to   GNI  ratio   decreased   (an   improvement)   to   19.4 percent from 19.7 percent a quarter ago. The same trend was observed using GDP as denominator, with the Philippine economy growing by 6.4 percent in the last quarter of 2019 from 6.0 percent  in  the  third  quarter  and  by  5.9  percent  for  the  full  year   2019. The ratio indicates the country’s sustained strong position to service foreign borrowings in the medium to long-term.

Debt Profile

As of end-December 2019, the maturity profile of the country’s external debt remained predominantly medium- and long-term (MLT) in nature [i.e., those with original maturities longer than one (1) year], with share to total at 79.4 percent. On the other hand, short term (ST) accounts [or those  with  original  maturities  of  up  to one (1) year] comprised the 20.6 percent balance of debt stock and consisted of bank liabilities, trade credits and others. The weighted average maturity for all MLT accounts decreased to 16.7 years, from 17.1 years during the previous quarter, with public sector borrowings having a longer average term of 20.9 years compared to 7.4 years for the private sector. This means that FX requirements for debt payments are well spread out and, thus, more manageable.

Public sector external debt stood at US$42.8 billion from US$42.5 billion in the previous quarter. About US$36.0 billion of public sector obligations were NG borrowings while the remaining US$6.7 billion pertained to loans of government-owned and controlled corporations, government financial institutions and the BSP.

Private sector debt grew from US$40.2 billion at end-September 2019 to US$40.8 billion at end-December 2019, with share to total likewise slightly increased from 48.6 percent to 48.8 percent. The rise was due largely to net availments of US$372 million.

Major creditor countries were: Japan (US$14.6 billion), United States of America (US$4.2 billion), United Kingdom (US$3.5 billion), and The Netherlands (US$3.3 billion)

Obligations to foreign banks and other financial institutions had the largest share (31.7 percent) of total outstanding debt, followed by loans from official sources [multilateral (17.3 percent) and bilateral creditors (13.1 percent)]. Bilateral sources (amounting to US$11.0 billion) were Japan - US$8.1 billion; China - US$685 million; and Singapore - US$439 million, among others. Meanwhile, foreign holders of bonds and notes partake 30.4 percent; and the rest (7.5 percent) were owed to other creditor types (mainly suppliers/exporters).

In terms of currency mix, the country’s debt stock remained largely denominated in  US  Dollar  (59.0   percent)   and   Japanese   Yen   (13.9   percent).  US dollar-denominated multi-currency loans from the World Bank and ADB represented 14.8 percent. The 12.3 percent balance pertained to 15 other currencies, including the Philippine Peso, Euro and SDR.

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