External Debt Ratios Remain at Comfortable Levels in 2015

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP)—BSP Governor Amando M. Tetangco Jr. announced that the outstanding Philippine external debt stood at US$77.5 billion as of end-2015, up by US$1.9 billion (or 2.5 percent) from the end-September 2015 level of US$75.6 billion.

The increase in the debt level during the quarter was largely attributed to net availments of US$1.8 billion mainly by private banks and corporates, to finance various projects arising from positive business sentiment due to encouraging domestic developments.

On a year-on-year basis, however, the debt stock declined by US$200 million from the US$77.7 billion figure for 2014 due to: (a) increased investments (US$1.8 billion) by residents (largely banks) in Philippines debt papers; and (b) US$456 million negative FX revaluation adjustments due to strengthening of the US Dollar in 2015 in view of the gradual recovery of the US economy and expectations of a US Federal Reserve interest rate hike. “A stronger dollar results in a lower debt figure expressed in US dollar terms,” Tetangco explained.

However, the full downward impact on debt stock of these factors was partly negated by US$2 billion composed of: (a) net availments (excess of drawings over debt payments); and (b) previous periods’ audit adjustments.

External debt refers to all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics.

External Debt Ratios

“Key external debt indicators remained at comfortable levels at the close of the year”, the Governor continued. Gross international reserves stood at US$80.7 billion as of end-2015 and represented a cover of 5.3 times for short-term (ST) debt under the original maturity concept.

The external debt ratio (a solvency indicator), or total outstanding debt (EDT) expressed as a percentage of annual aggregate output (GNI) improved from 22.5 percent in 2014 to 21.9 percent by year-end as a result of the country’s sustained economic growth.

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. The ratio nevertheless continued to improve to 5.3 percent in December 2015 from 5.6 percent in September 2015 and 6.3 percent in December 2014 due to a larger decline in payments vis-à-vis receipts.

Debt Profile

The country’s external debt continued to be largely medium- to long-term (MLT) in tenor [i.e., those with original maturities longer than one (1) year] with an  80.5 percent share to total.  This means that FX requirements for debt payments are well spread out and, thus, more manageable.

The weighted average maturity for all MLT accounts stood at 16.5 years, with public sector debt having a longer average term of 22.5 years compared to 7.9 years for the private sector.

ST external debt comprised the 19.5 percent balance of debt stock, and consisted mainly of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposit liabilities.
Private sector external debt stood at US$39.2 billion (50.6 percent of total), higher by US$1.5 billion from the end-September 2015 level of US$37.7 billion due to higher liabilities of banks.

Public sector debt, on the other hand, reflected a more modest growth from US$37.9 billion to US$38.3 billion, with the bulk pertaining to the National Government at US$30.8 billion.

Obligations to foreign banks and other financial institutions comprised the largest share of outstanding debt at 33.9 percent, followed by official sources (multilateral and bilateral creditors – 30.3 percent).  Borrowings in the form of bonds/notes held by non-residents accounted for 29.7 percent, while the
6.1 percent balance are mostly owed to foreign suppliers/exporters.

In terms of currency mix, the bulk of the country’s debt stock remained denominated in US Dollar (65.5 percent) and Japanese Yen (11.7 percent). US dollar-denominated multi-currency loans from the World Bank and the Asian Development Bank had an 11.8 percent share to total, while the remaining 11.0 percent consisted of 17 other currencies, including the Philippine Peso (6.6 percent), SDR (2.2 percent), and the Euro (1.5 percent).