PH external debt up 13% to $110 B

Published June 19, 2022, 8:10 PM

by Lee C. Chipongian

To fund government’s infra projects and Covid-related expenses, the Duterte administration borrowed $12.71 billion more as of end-March, bringing the total outstanding external debt to $109.75 billion, up by 13.09 percent from $97.05 billion same period last year.

The Bangko Sentral ng Pilipinas (BSP) over the weekend reported that in the last 12 months, total net availments amounted to $16.4 billion, of which P12 billion were accounted by the National Government (NG). Another $3.2 billion were tagged as prior periods’ adjustments which also added to the external debt increase.

The BSP said what checked a further increase in the debt stock is the transfer of Philippine debt papers from non-residents to residents which reached $5.1 billion during the period and also a $1.8 billion negative foreign exchange (FX) revaluation.

BSP Governor Benjamin E. Diokno said at $109.75 billion, the country’s outstanding external debt “remained manageable” at 27.5 percent of GDP. This ratio which is a solvency indicator, is however higher compared to same time in 2021 of 26.6 percent.

The BSP said the external debt to GDP ratio continue to be one of the lowest in the ASEAN region and “indicates the country’s sustained strong position to service foreign borrowings.”

However, the external debt is still higher than the Philippines’ gross international reserves or dollar stock which as of end-May this year reached $103.53 billion, the lowest level since October 2020.

Meantime, the debt service ratio (DSR) dropped to 4.1 percent from 14.3 percent in 2021 because of the scheduled lower repayments plus higher receipts. The DSR, which relates principal and interest payments (debt service burden) 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.

External debt, which refers to all types of borrowings by Philippine residents from non-residents on a quarter-on-quarter basis also increased by 3.1 percent or by $3.3 billion, based on BSP data.

Net availments of $3.5 billion from the government and private non-banks raised the debt stock during the quarter.

The government borrowed $2.3 billion between end-December to end-March this year to fund its pandemic response programs and infrastructure projects. It also issued $2.3 billion of global bonds which includes its sustainability bond.

Non-bank private sector borrowers took out $995 million during the quarter as working capital and to finance their projects.

The BSP also noted that for the first quarter, several factors contained the debt stock increase such as prior periods’ adjustments of $1.7 billion and transfer of Philippine debt papers issued offshore from non-residents to residents of $1 billion, as well as negative FX revaluation of $841 million.

As of end-March, public sector debt stood at $67.4 billion, it was up by $3.4 billion versus $63.9 billion end-December. About 87.3 percent or $58.8 billion were NG borrowings while the remaining $8.5 billion were loans taken out by government-owned and controlled corporations, government financial institutions and the BSP.

As for private sector external debt, this amounted to $42.4 billion, slightly lower compared to $42.5 billion end-2021.

About 87.2 percent of the country’s external debt maturity profile continue to be dominated by medium- and long-term (MLT) loans or loans with original maturities longer than one year.

Shorter term accounts or those with original maturities of up to one year, accounted for 12.8 percent of debt stock, mostly bank liabilities, trade credits and others.

“The weighted average maturity for all MLT accounts decreased to 16.9 years from 17.2 years during the previous quarter, with public sector borrowings having a longer average term of 20.5 years compared to 7.1 years for the private sector. This means that FX requirements for debt payments are still well spread out and, thus, manageable,” according to the BSP.

The country’s major creditors include Japan with $14.5 billion, the United Kingdom with $3.7 billion, and The Netherlands with $2.9 billion.

About 37.8 percent of external loans came from official sources or multilateral and bilateral creditors, while 34.6 percent were bonds or notes’ issuances. Another 21.5 percent of external debt are obligations to foreign banks and other financial institutions. A small portion or 6.1 percent were owed to other creditors such as suppliers/exporters.

Diokno, who is the incoming Secretary of the Department of Finance (DOF) under the Marcos administration, said he will focus on reducing the debt to GDP ratio and the fiscal deficit to GDP ratio under his watch.

The country’s debt-to-GDP level is higher at 63.5 percent, exceeding the internationally prescribed best practice of 60 percent of GDP. The DOF said an additional P3.2 trillion debt will have to be dealt with by the end of 2022.

Diokno said earlier that a pandemic-induced rising debt is unavoidable but not likely to lead to a credit rating downgrade in the future.

The outgoing BSP chief maintains that public debt is “quite manageable” and the country could “easily outgrow its debt since we expect the Philippine economy to grow much faster than its debt.”

As for external debt, Diokno reiterated that the external debt to GDP ratio was still one of the lowest in the ASEAN trade bloc. This means the servicing of foreign debt is fairly manageable since most of the country’s foreign debt are medium to long term, and has fixed interest rates.