The government borrowed more foreign loans in 2020 to fund COVID-19 response, pushing the outstanding external debt to grow by 17.8 percent to $98.488 billion from $83.618 billion in 2019, based on Bangko Sentral ng Pilipinas (BSP) data.
The country’s external debt as a ratio to GDP increased to 27.2 percent last year versus 22.2 percent previously. The last time the external debt to GDP was at this level was in 2013, and it has been under 23 percent since 2017.
As solvency indicator, this level is still considered stable. The GDP ratio increased to 27.2 percent from 25.3 percent end-September 2020 after the GDP contracted by 8.3 percent in the last quarter and 9.5 percent for full-year 2020 while external debt rose. As for gross national income, this also rose to 25.2 percent in 2020 from 20.2 percent in 2019 but as far as the central bank in concerned, this ratio still indicates the country’s “sustained strong position to service foreign borrowings in the medium to long-term.”
BSP Governor Benjamin E. Diokno in a statement said the debt stock rose by 7.1 percent in the fourth quarter of 2020 from end-September’s $92 billion. He said this was due to net availments of $7.9 billion by both public and private sector borrowers in the fourth quarter.
The National Government (NG) sourced $2.8 billion via issuance of Global Bonds and borrowed $733 million from official sources for pandemic response programs and infrastructure projects in the last three months of 2020, said the BSP.
The BSP noted that private local banks also “leveraged on a strong Philippine peso vis-à-vis the US dollar to diversify their portfolio and maintain a comfortable liquidity buffer over the year-end, leading to net availments of $3 billion.”
“The increase in foreign borrowings by private non-banks was due to net availments of $1.7 billion to augment their working capital,” explained the BSP.
The foreign exchange (FX) revaluation of $544 million was also added to the debt stock as the US dollar weakened against other currencies which may be attributed to expectations of continued stimulus in the US, among others, said the BSP. “The rise of the debt stock was partially offset by prior periods’ adjustments of $1.6 billion and increase in residents’ investments in Philippine debt papers issued offshore of $410 million,” it added.
On a year-on-year basis, the BSP attributed the $14.9 billion increase to the following: net availments of $12.6 billion, mainly by the NG; increase in non-resident holdings of Philippine debt papers issued offshore of $1.8 billion; and positive FX revaluation of $1.5 billion.
“The rise in the debt stock was partially tempered by prior periods’ adjustments of $1.1 billion,” said the BSP.
Diokno said that despite the increase in the external debt level, the “key external debt indicators remained at prudent levels” with gross international reserves of $110.1 billion by end-December 2020.
Diokno said the debt service ratio (DSR) also improved to 6.3 percent in 2020 from 6.7 percent in 2019 because of lower payments.
Based on BSP data, the maturity profile of the country’s external debt remained predominantly medium-and long-term (MLT) or about 85.6 percent of the total. Short term accounts or those with original maturities of up to one year contributed about 14.4 percent. “The weighted average maturity for all MLT accounts remained at 16.6 years, with public sector borrowings having a longer average term of 20.4 years compared to 7.3 years for the private sector. This means that FX requirements for debt payments continued to be well spread out and, thus, manageable,” said the BSP.
Public sector external debt at the end of 2020 rose to $58.1 billion from $54.4 billion in the previous quarter. “About $51.9 billion of public sector obligations were NG borrowings while the remaining $6.3 billion pertained to loans of government-owned and controlled corporations, government financial institutions and the BSP,” said the BSP.
Private sector debt quarter-on-quarter also went up to $40.4 billion from $37.6 billion with share to total up from 40.9 percent to 41.0 percent. The BSP said the increase in private sector debt came after net availments of $3 billion by private banks and $1.7 billion by private non-banks.