The Philippines’ External Debt Rises in the 2nd Quarter of 2020 due mainly to Financing for COVID-19 Response Efforts

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, announced that the Philippines’ outstanding external debt stood at US$87.5 billion as of end-June 2020, up by US$6.0 billion (or 7.4 percent) from the US$81.4 billion level as of end-March 2020.

 

The rise in the debt stock during the second quarter was due to net availments of US$2.9 billion, largely attributed to the National Government (NG) as the NG raised US$2.4 billion from the issuance of global bonds and US$3.1 billion from multilateral and bilateral creditors to fund its general financing requirements and COVID-19 pandemic response programs/projects. Further increases to the debt level were due to: (a) prior periods’ adjustments of US$2.1 billion; (b) increase in non-residents’ investment in Philippine debt papers issued offshore of US$839 million; and (c) positive foreign exchange (FX) revaluation of US$227 million as the US Dollar weakened against other currencies, including the Philippine Peso.

 

Year-on-year, the country’s debt stock rose by US$6.2 billion, which was brought about by (a) prior periods’ adjustments (US$2.7 billion); (b) transfer of Philippine debt papers from residents to non-residents (US$2.0 billion); (c) net availments (US$1.4 billion); and (d) positive FX revaluation (US$89 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 despite the increase in the external debt level, key external debt indicators remained at prudent levels. Gross International Reserves stood at US$93.5 billion as of end-June 2020 and represented 8.7 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. For January to June 2020, the ratio slightly increased to 7.8 percent from 7.7 percent recorded 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 Gross Domestic Product (GDP) is a solvency indicator.  EDT to GDP ratio increased to 23.7 percent from 21.4 percent a quarter ago as GDP declined by 16.5 percent while external debt rose during the reference quarter. The ratio indicates the country’s sustained strong position to service foreign borrowings in the medium to long-term (MLT).

 

The country’s EDT to GDP ratio remains one of the lowest as compared to other ASEAN member countries.

 

Debt Profile

 

As of end-June 2020, the maturity profile of the country’s external debt remained predominantly MLT in nature [i.e., those with original maturities longer than one (1) year], with share to total at 87.7 percent. On the other hand, ST accounts [or those with original maturities of up to one (1) year] comprised the 12.3 percent balance of debt stock and consisted of bank liabilities, trade credits and others. The weighted average maturity for all MLT accounts slightly increased to 17.0 years, from 16.9 years during the previous quarter, with public sector borrowings having a longer average term of

20.9 years compared to 7.8 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 increased to US$51.0 billion from US$45.1 billion in the previous quarter. About US$44.4 billion of public sector obligations were NG borrowings while the remaining US$6.6 billion pertained to borrowings of government-owned and controlled corporations, government financial institutions and the BSP.

 

Private sector debt slightly increased from US$36.3 billion as of end-March 2020 to US$36.5 billion as of end-June 2020, with share to total decreasing from 44.6 percent to 41.7 percent. The recorded increase was due largely to prior periods’ adjustments (US$2.1 billion) and net availments (US$334 million) by private non-banks, which were offset by net repayments (US$2.3 billion) by private banks.

 

Major creditor countries were: Japan (US$15.3 billion), United States of America (US$3.2 billion), The Netherlands (US$3.1 billion), and United Kingdom (US$2.6 billion).

 

Loans from official sources [multilateral and bilateral creditors (comprised of Japan – US$8.2 billion; China – US$1.1 billion; and Republic of Korea – US$514 million, among others)] had the largest share (34.9 percent) of total outstanding debt, followed by foreign holders of bonds and notes (33.6 percent).  Meanwhile, obligations to foreign banks and other financial institutions partake 26.3 percent; and the rest (5.1 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 (55.4   percent) and   Japanese   Yen (12.4   percent).  US dollar-denominated multi-currency loans from the World Bank and ADB represented 18.5 percent. The 13.7 percent balance pertained to 15 other currencies, including the Philippine Peso, Euro and Special Drawing Rights.

 

 

Source: Bangko Sentral ng Pilipinas (BSP)