External debt service rises to $1.59 B in Feb.

By Lee C. Chipongian

Philippines’ external debt service burden increased to $1.59 billion in the first two months of 2018 or up by 4.93 percent year-on-year from $1.52 billion, data from the Bangko Sentral ng Pilipinas (BSP) show.

The principal debt servicing rose to $1.10 billion, up six percent compared to $1.04 billion same time in 2017. Interest payments were also 2.72 percent higher to $491 million from $478 million.

As of end-2017, the country’s outstanding external debt was lower by 2.22 percent year-on-year to $73.09 billion from $74.76 billion.

In a central bank report, the debt service ratio which relates debt service burden to exports of goods and receipts from services and primary income, continue to show the adequacy of public and private sector’s foreign exchange earnings.

In 2017, the debt service ratio improved to 6.2 percent compared to seven percent in 2016. The BSP said the ratio is well below the 20 percent to 25 percent international benchmark range. The debt service burden to current account receipts, on the other hand, also dropped to 5.8 percent from 6.6 percent in 2016.

For this year, the BSP is not imposing foreign debt caps since with plenty foreign exchange (FX) rules being liberalized, there was no need for ceilings.

The BSP’s foreign borrowing cap is for both the public or government sector, and the private sector. While the central bank has – in effect – left the private sector to its own foreign borrowing plan and they could borrow how much they want, the monitoring of all government foreign borrowing remains strictly mandatory.

The BSP reviews the private sector’s yearly foreign borrowing plans as part of its external debt management measures. These are banks, foreign parent companies and affiliates, and they borrow offshore via the issuance of bonds or securities in the international capital markets.

Last Friday, BSP Deputy Governor Diwa C. Guinigundo announced a new set of  liberalized FX regulations to further smoothen access to FX.

Under the new amended rules, these no longer require prior BSP approval: the conversion of foreign currency loans granted by banks to peso loans; and transfer of such loans, as well as Real and Other Properties Acquired from banks’ foreign currency deposit unit books to the Regular Banking Unit books.

Guinigundo said these transactions “no longer require prior BSP approval under certain conditions which seek to ensure that banks fully understand the nature and extent of the risks involved and that they have put in place appropriate business policies and risk management systems to manage these transactions.”