PH net external liability widens by 73% end-June

The country’s net external liability position widened by 73.3 percent to $48.5 billion as of end-June from $28 billion same period in 2022 due to the decline in external financial assets, which are reserve assets, according to a central bank report.

The Bangko Sentral ng Pilipinas (BSP) in its latest preliminary international investment position (IIP) report, said the net external liability position increased because of the 8.8 percent growth in total external financial liabilities of $280.18 billion end-June from $257.41 billion last year.

This offset the one percent growth in total external financial assets amounting to $231.63 billion end-June versus $229.4 billion same time in 2022.

As defined by the BSP using International Monetary Fund (IMF) description, the IIP is a statistical statement that shows at a point in time the value of financial assets of residents of an economy that are claims on non-residents or are gold bullion held as reserve assets and the liabilities of residents of an economy to non-residents. The difference between the assets and liabilities is the net position in the IIP which represents either a net claim on or a net liability to the rest of the world.

On a quarter-on-quarter basis, the net external liability position went up by 2.5 percent from $47.4 billion in end-March this year.

The BSP said the slight decline in the country’s external financial assets by one percent outpaced the contraction in external financial liabilities which dropped by 0.4 percent.

As of end-June, total outstanding external financial assets reached $231.6 billion, while total outstanding external financial liabilities was at $280.2 billion.

The BSP said the quarter-on-quarter contraction in the country’s total stock of external financial assets was due mainly to the decline in the reserve assets which totaled $99.4 billion end-June from $101.5 billion, and other investments to $26.8 billion from $27.4 billion. The reserve assets as gross international reserves decline due to withdrawals from the National Government (NG) to pay for maturing past obligations, among other factors.

“The level of reserves declined due to the NG net foreign currency withdrawals from its deposits with the (BSP) to settle its foreign currency debt obligations and pay for its various expenditures, and downward adjustments in the valuation of the BSP’s foreign currency-denominated reserves (or non-gold reserves) and gold holdings," said the BSP in a report.

In addition, it noted that "the residents’ net withdrawal of their currency and deposits in foreign banks also contributed to the lower total outstanding level of external financial assets of the country during the review period."

Because of downward valuation adjustments, there was a 2.6 percent decrease in foreign portfolio investments (FPI) to $85.2 billion from $87.4 billion. This decline, however, was “muted partly” by the 0.8 percent growth in foreign direct investments (FDI) to $117.5 billion from $116.6 billion.

Meanwhile, the BSP said year-on-year growth in the total external financial liabilities came from the combined increases in the outstanding value of all components of the liability account.

In particular, it noted that FDI grew by 8.6 percent to $117.5 billion from $108.2 billion as intercompany borrowings from affiliates abroad increased by 10.7 percent to $59 billion.

Other investments rose by 11.3 percent to $77.1 billion from $69.3 billion due to the 13.5 percent growth in residents’ outstanding loans to $64.7 billion.

The FPI also increased by 6.9 percent to $85.2 from $79.7 billion as non-residents’ investments in resident-issued debt securities grew by 11.5 percent to $47.4 billion as of end-June.

“The annual expansion in the total external financial assets reflected the residents’ direct investments abroad, particularly in the form of debt instruments ($40.6 billion) and equity capital ($28.5 billion),” said the BSP.

The outstanding external financial liabilities of the NG also dropped by 0.6 percent to $71.4 billion. This accounted for about 25.5 percent of the Philippines’ total external financial liabilities.

Meanwhile, the banks’ share stood at 12.7 percent of the country’s total external financial liabilities at $35.5 billion, higher by 0.6 percent compared to $35.3 billion in end-March. The remaining 1.4 percent or $3.8 billion of the country’s total external financial liabilities were held by the BSP.

The latest IIP report also noted that in the external financial assets side, the BSP still possess the largest share of residents’ total external financial claims at 44.8 percent worth $103.8 billion as of end-June. This amount was 2.2 percent lower than the $106.1 billion asset holdings as of end-March.

The “other sectors” outstanding external financial assets reached $94.1 billion, accounting for 40.6 percent of the country’s total stock of financial assets as of end-June 2023 with banks accounting for for the remaining 14.6 percent of the country’s total external financial assets at $33.7 billion.

These other sectors refer to other financial corporations which include private and public insurance corporations, holding companies, government financial institutions, investment companies, other financial intermediaries except insurance, trust institutions/corporations, financing companies, securities dealers/brokers, lending investor, and foreign exchange corporations, investment houses, pawnshops, credit card companies, offshore banking units, among other non-financial corporations.

As for external financial liabilities, the other sectors had the biggest share to the country’s total external liabilities at 60.5 percent or $169.4 billion as of end-June, down 0.6 percent from end-March of $170.3 billion.