Outstanding External Debt Drops Further in Q4 2013

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the country’s outstanding external debt approved/registered by the BSP amounted to $58.5 billion as of end-2013, down by $547 million (or 0.9%) from the $59.1 billion level in September 2013. External debt refers to all types of borrowings by Philippine residents from non-residents that are approved/registered by the BSP.

While loan transactions for the quarter resulted in net inflows of $898 million, other factors contributed to the overall drop in external obligations, namely: (a) the strengthening of the US Dollar (reporting currency for external debt) against the Japanese Yen which reduced the US Dollar value of Philippine debt by $863 million; and (b) higher investments by residents in Philippine bonds and notes issued abroad ($633 million) due to the high foreign exchange liquidity of the banking system.

A similar trend was noted year-on-year, as the debt stock showed a $1.8 billion (or 3%) decline from the end-2012 level of $60.3 billion due largely to foreign exchange revaluation adjustment ($2.9 billion) as the Japanese Yen weakened vis-à-vis the US Dollar, which was partly offset by net loan inflows ($647 million) and increased investments by non-residents in Philippine debt papers ($416 million) as investors sought safer investment outlets for their funds, amidst lingering issues in the  eurozone and the pace of recovery of the United States economy.

External Debt Ratios

“Key external debt indicators remained at prudent levels at the close of the year,” the Governor continued.  Gross international reserves (GIR) of $83.2 billion as of 31 December 2013 was equivalent to a cover of 7.4 times for short-term (ST) debt under the original maturity concept and 6 times under the remaining maturity concept, with the current ratio under the remaining maturity concept being much higher than the international benchmark of 1.0.  [ST accounts under the remaining maturity concept consist of obligations with original maturities of one (1) year or less, plus amortizations on medium and long-term accounts falling due within the next 12 months, i.e., from January to December 2014.]

The external debt ratio (a solvency indicator), or total outstanding debt (EDT) expressed as a percentage of annual aggregate output (GNI), continued to improve with the 7.2% full year growth of the economy in 2013 and a lower debt level. Debt to GNI further improved from 18.4% in the previous quarter to 18% by December 2013. The same trend was observed using gross domestic product as denominator, with the ratio declining from 21.9% in the third quarter to 21.5% by year-end.

The external debt service ratio (DSR), or the ratio of total principal and interest payments relative to total exports of goods and receipts from services and income (XGSI), improved to 7.6% at the close of 2013 due to higher receipts and lower payments during the year; however, a slight increase in the ratio was noted compared with the end-2012 figure.  Nevertheless, the ratio, which measures sufficiency of foreign exchange available to meet currently maturing obligations, has remained well below the 20% to 25% international benchmark, attesting to the country’s strong liquidity position.

Debt Profile

The country’s external obligations remained skewed towards medium- to long-term (MLT) accounts, which represented 80.8 percent of total. This means that loan payments are spread out over a longer time horizon, resulting in a more manageable level of debt service payments.

The weighted average maturity for all MLT accounts stood at 20 years, with public sector borrowings having a longer average tenor of 22 years compared to 9.8 years for the private sector.

Short-term external debt comprised the 19.2% balance of debt stock, consisting largely of trade credits and bank borrowings.

Total public sector debt was down to $40.5 billion at the end of 2013 from $42.2 billion level in September 2013, due to: a) downward foreign exchange revaluation adjustments ($817 million); b) increased resident holdings of public sector debt papers ($633 million); and (c) net loan repayments ($202 million) due to National Government’s thrust to borrow more from the domestic market to reduce exposure to foreign exchange risk.  In contrast, private sector debt grew from $16.9 billion to $18 billion due to net loan inflows, with brisk business activities arising from positive domestic developments.

The creditor profile was essentially unchanged: official creditors (consisting of multilateral and bilateral creditors) continued to have the largest exposure at 36.8% of total debt, followed by foreign holders of bonds/notes (35.6%), foreign banks and other financial institutions (20.6%) and foreign suppliers/exporters (7%).

In terms of currency mix, the country’s foreign debt remained largely denominated in two major currencies – the US Dollar (53.1%) and the Japanese Yen (18.9%), while multi-currency loans from the World Bank and the Asian Development Bank accounted for 12%, and 18 other currencies, 16%.