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

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, announced that the Philippines' outstanding external debt stood at US$82.7 billion as of end-September 2019, up by US$1.4 billion (or 1.7 percent) from the US$81.3 billion level as of end-June 2019.

The rise in the debt stock during the third quarter was due to net availments of US$2.2 billion attributed to bond issuances of the National Government and private local banks. Increase in residents' investments in Philippine Debt Papers issued offshore amounting to US$426 million, negative foreign exchange revaluation of US$211 million, and prior periods' adjustments of US$114 million partially offset the uptick in the debt stock.

Year-on-year, the debt stock increased by US$6.3 billion (or by 8.2 percent) brought about by: (a) net availments (US$5.0 billion); (b) FX revaluation adjustments (US$1.2 billion); and (c) prior periods' adjustments (US$812 million). This upward impact on the debt stock was partially offset by the transfer of Philippine debt papers from non-residents to residents (US$843 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$85.6 billion as of end-September 2019 and represented 5.4 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-September 2019, the ratio improved to 6.4 percent from 7.0 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 19.7 percent from 19.9 percent a quarter ago. The same trend was observed using GDP as denominator with the Philippine economy growing by 6.2 percent in the third quarter of 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-September 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 80.8 percent. On the other hand, short term (ST) accounts [or those with original maturities of up to one (1) year] comprised the 19.2 percent balance of debt stock and consisted of bank liabilities, trade credits and others. The weighted average maturity for all MLT accounts increased to 17.1 years, from 16.8 years during the previous quarter, with public sector borrowings having a longer average term of 21.0 years compared to 8.5 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$42.5 billion from US$42.3 billion in the previous quarter. About US$35.6 billion of public sector obligations were NG borrowings while the remaining US$7.0 billion pertained to loans of government-owned and controlled corporations, government financial institutions and the BSP.

Private sector debt grew from US$39.0 billion at end-June 2019 to US$40.2 billion at end-September 2019, with share to total likewise slightly increasing from 48.0 percent to 48.6 percent. The recorded rise in private sector borrowings may be attributed to bond issuances of private local banks, of which US$401 million are ASEAN Green Bonds. Major creditor countries were: Japan (US$14.8 billion), United States of America (US$4.3 billion), United Kingdom (US$3.6 billion), and The Netherlands (US$3.1 billion).

Obligations to foreign banks and other financial institutions had the largest share (32.6 percent) of total outstanding debt, followed by loans from official sources [multilateral (17.7 percent) and bilateral creditors (13.0 percent)]. Bilateral sources (amounting to US$10.7 billion) were Japan � US$7.9 billion; China � US$705 million; and the Republic of Korea � US$480 million, among others. Meanwhile, foreign holders of bonds and notes partake 29.5 percent; and the rest (6.5 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 (59.2 percent) and Japanese Yen (13.8 percent). US dollar-denominated multi-currency loans from the World Bank and ADB represented 15.2 percent. The 11.8 percent balance pertained to 15 other currencies, including the Philippine Peso, Euro and SDR.

Source: Bangko Sentral ng Pilipinas (BSP)