With the prolonged pandemic, the country's net external liability position increased 3.5 percent to P676.6 billion in the first quarter from same period last year of P653.8 billion due to higher net foreign liabilities by the general government and non-financial corporations (NFCs), a report from the Bangko Sentral ng Pilipinas (BSP) said.
Based on the latest Balance Sheet Approach (BSA), which helps the BSP detect financial crisis by assessing asset-liability mismatches, the higher external exposure stemmed from the increase in the country’s net debtor position against the rest of the world (ROW), driven by the higher net foreign liabilities of the general government and NFCs’ net liability position against the ROW.
By sector, the households (HH) and the financial sector comprising of Central Bank (CB), the other depository corporations (ODCs), and other financial corporations (OFCs) remained net creditors while the NFCs and the general government continued to be net debtors, said the BSP.
In the first three months of 2021, the general government’s indebtedness against the BSP referred to as the CB in the BSA accounting, ODCs and ROW increased substantially amid the prolonged pandemic.
The general government’s net liability position went up by 31.6 percent to P5.8 trillion from P4.4 trillion in the same period in 2020. Its position against the CB reversed from a net creditor at P84.1 billion to a net debtor at P590.9 billion due to liabilities to the CB of P2.1 trillion compared to P740 billion same time last year.
“The CB more than quadrupled its government security holdings to P1.5 trillion from P329 billion due to its purchases in the secondary market,” said the BSP. The general government’s external indebtedness also rose to P2.7 trillion from P2.2 trillion because of higher foreign loans of the national government (NG).
Because of increased funding requirements, the NFCs’ net financial liability position rose to P7.1 trillion in the first quarter from P6.9 trillion in the same period in 2020, as NFCs’ net liabilities to ROW increased by 14.5 percent year-on-year to P3.1 trillion while OFCs went up by 19 percent to P2.1 trillion.
“The NFCs increased their liability exposure to the OFCs and ROW (which) was partly accounted for by their issuance of equity and debt securities for their funding requirements. However, as their liabilities to said counterparties increased, the gross liabilities of the NFCs to the ODCs declined by 2.1 percent, following the 3.3 percent contraction in its bank loans, reflecting the continued tightening of bank credit conditions amid the economic uncertainties surrounding the ongoing pandemic,” said the BSP. NFCs’ net liability position with the ODCs declined to P1.5 trillion from P2.1 trillion in 2020.
The ODCs’ net creditor position also expanded during the quarter due to higher claims on the CB, general government and ROW. ODCs’ net financial assets increased by 34.9 percent year-on-year to P2.1 trillion. Their debt security investments went up by 26 percent to P4.9 trillion while investment in government securities also rose by 17.2 percent to P3.2 trillion. “These developments reflected the banks’ continued cautious stance and preference to hold risk-free instruments amid the uncertainty in the economic environment,” said the BSP.
The BSA also reported that HH net creditor position expanded by 15.1 percent year-on-year to P9.5 trillion because of higher net claims on the ODCs, OFCs, and CB. The HHs’ financial claims are mostly currency and deposits.
The CB’s net claims was down by 15.4 percent to P532.6 billion during the period due to larger net liabilities with the ODCs. Its gross liabilities against the ODCs increased by 51.9 percent to P3.7 trillion as ODCs invested more in BSP facilities, including BSP bills.
The BSP said the general government’s deposits of P1.4 trillion in the first quarter was almost double versus P733.5 billion same time in 2020. “These, however, were partly mitigated by the 16.8 percent expansion in the CB’s net external claims to P5.2 trillion from P4.4 trillion (as the) country's gross international reserves continued to rise. In addition, the CB’s claims on the general government rose substantially, following its investment in government securities to support the NG’s funding requirements for COVID-19-related measures,” said the BSP.
The BSA analysis which was developed by the International Monetary Fund is the country’s sectoral accounts “on a from whom-to-whom basis using the aggregate balance sheet data of each sector of the economy.”
The BSP said the report is mainly a financial stability surveillance tool to “better monitor the potential vulnerabilities of economic sectors and their relationships with one another.”