External debt exceeds $100 B

The country’s total external debt rose above $100 billion for the first time in the Philippines’ foreign debt history, with the Duterte administration borrowing more to finance the budget deficit and anti-pandemic response.

BSP: Philippine external debt exceeds $100 billion as of end-June 2021

Data from the Bangko Sentral ng Pilipinas (BSP) showed that as of end June, outstanding external debt went up by 15.66 percent year-on-year to $101.2 billion. This was an increase of $13.7 billion over the same period in 2020 of $87.5 billion.

In terms of external debt ratio vis-à-vis the gross domestic product (GDP), BSP Governor Benjamin E. Diokno pointed out that the foreign debt stock is still considered at “prudent levels” because the ratio “slightly eased” to 26.5 percent compared to the previous quarter’s (end-March 2021) 26.6 percent.

“This is reflective of the faster economic growth in the second quarter,” said Diokno in a statement over the weekend. The GDP broke out of its five quarters of contraction to a higher-than-expected growth of 11.8 percent in the second quarter 2021, mainly due to base effects.

The external debt to GDP ratio is still one of the lowest in the ASEAN bloc. A manageable external debt to GDP ratio means a country’s “sustained strong position to service foreign borrowings in the medium to long-term (MLT).”

Diokno also said that key external debt indicators continue to be manageable. Even at $101.2 billion external debt as of end-June, the country’s foreign exchange reserves is still higher at $107 billion as of end-August. The gross international reserves can cover up to 7.5 times the Philippines’ short-term debt based on the original maturity.

Diokno said the debt service ratio (DSR) increased to 9.4 percent during the period from 8.4 percent last year because of higher payments. The DSR, which relates principal and interest payments or the debt service burden to exports of goods and receipts from services and primary income, measures the country’s ability to pay for maturing foreign currency loans.

External debt quarter-on-quarter rose by 4.3 percent or by $4.1 billion from $97 billion end-March. New loans amounting to $3.8 billion came from the National Government’s (NG) borrowings. These include the $3 billion issuance of Euro-denominated global bonds and Samurai bonds, and the $1.3 billion multilateral and bilateral loans for general financing requirements and COVID-19 programs and projects.

The BSP said prior periods’ adjustments of $977 million also increased the debt stock.The further rise in external debt level, however, was mitigated by resident investments in Philippine debt papers issued offshore of $686 million.

On a year-on-year, the $13.7 billion increase in the debt stock was due to the following: net availments of $14.4 billion, mainly by the NG and private non-banks; and positive foreign exchange revaluation of $205 million. “The uptick in the debt level was partly tempered by the transfer of Philippine debt papers from non-residents to residents of $438 million and prior periods’ adjustments of $391 million,” said the BSP.

As of end-June, public sector external debt was at $59.9 billion from $56.8 billion in the previous quarter, of which $54.3 billion were NG borrowings while the remaining $5.7 billion were loans of other government-owned and controlled corporations and government financial institutions such as the BSP.

Private sector debt also went up to $41.3 billion from $40.3 billion end-March due to prior periods’ adjustments of $954 million by private non-banks and net availments of $123 million, which were partially tempered by the increase in resident investments in debt papers issued offshore of $139 million, the BSP explained.

The maturity profile remained predominantly MLT or loans with original maturities longer than one year. MLT share to total is 86 percent. Short term accounts of up to one year, in the meantime, is 14 percent of total.

The average maturity for all MLT accounts is 17.1 years, with public sector borrowings having a longer average term of 20.6 years compared to 7.4 years for the private sector, said the BSP. “This means that foreign exchange requirements for debt payments are still well spread out and, thus, manageable,” it added.

The BSP in 2015 changed the compilation of the country’s external debt data for a more comprehensive and reliable coverage and to make it more compliant to all known global debt reporting standards.