The Philippines’ External Debt Ratios Remain at Prudent Levels even as External Debt Rises in the Second Quarter 2019

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, announced that the Philippines' outstanding external debt stood at US$81.3 billion as of end-June 2019, up by US$827 million (or 1.0 percent) from the US$80.4 billion level as of end-March 2019.

The rise in the debt stock during the second quarter was brought about by the increase in non-residents' investments in Philippine debt papers issued offshore amounting to US$1.2 billion and positive foreign exchange (FX) revaluation adjustments amounting to US$405 million. Net repayments amounting to US$650 million and prior periods' adjustments of US$133 million partially offset the uptick in the debt stock.

Year-on-year, the debt stock increased by US$9.1 billion brought about by: (a) net availments (US$8.8 billion); (b) prior periods' adjustments (US$549 million); and (c) FX revaluation adjustments (US$385 million). This upward impact on the debt stock was partially offset by the transfer of Philippine debt papers from non-residents to residents (US$746 million).

External debt refers to all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics.

External Debt Ratios

The Governor further stated that key external debt indicators remained at prudent levels despite the rise in external debt. Gross International Reserves stood at US$84.9 billion as of end-June 2019 and represented 5.5 times cover for ST debt under the original maturity concept.

The debt service ratio (DSR), which relates principal and interest payments (debt service burden or DSB) 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. As of end-June 2019, the ratio was at 7.5 percent, similar to the same period a year ago. The DSR has consistently remained at single digit levels.

Total outstanding debt (EDT) expressed as a percentage of annual aggregate output [Gross National Income (GNI) or Gross Domestic Product (GDP)] is a solvency indicator. EDT to GNI ratio slightly decreased to 19.9 percent from 20.0 percent a quarter ago. The same trend was observed using GDP. The ratio indicates the country's sustained strong position to service foreign borrowings in the medium to long-term.

Debt Profile

As of end-June 2019, the maturity profile of the country's external debt remained predominantly medium- and long-term (MLT) in nature [i.e., those with original maturities longer than one (1) year], with share to total at 80.8 percent. On the other hand, short term (ST) accounts [or those with original maturities of up to one (1) year] comprised the 19.2 percent balance of debt stock and consisted of bank liabilities, trade credits and others. The weighted average maturity for all MLT accounts was at 16.8 years similar to the previous quarter, with public sector borrowings having a longer average term of 20.8 years compared to 7.7 years for the private sector. This means that FX requirements for debt payments are well spread out and, thus, more manageable.

Public sector external debt increased to US$42.3 billion from US$40.2 billion in the previous quarter. About US$35.2 billion (83.3 percent) of public sector obligations were NG borrowings while the remaining US$7.0 billion pertained to other government agencies' loans.

Private sector debt declined from US$40.3 billion at end-March 2019 to US$39.0 billion at end-June 2019, with share to total likewise decreasing from

50.1 percent to 48.0 percent. The recorded decline in private sector borrowings was due largely to the reduction in bank liabilities.

Major creditor countries were: Japan (US$15.1 billion), United States of America (US$4.0 billion), Netherlands (US$3.2 billion), and United Kingdom (US$3.0 billion).

Obligations to foreign banks and other financial institutions had the largest share (32.2 percent) of total outstanding debt, followed by loans from official sources [multilateral (18.0 percent) and bilateral creditors (13.4 percent)]. Bilateral sources (amounting to US$10.9 billion) comprised of Japan � US$8.1 billion; China � US$684 million; and France � US$441 million, among others. Meanwhile, foreign holders of bonds and notes partake 29.5 percent; and the rest (6.9 percent) were owed to other creditor types (mainly suppliers/exporters).

In terms of currency mix, the country's debt stock remained largely denominated in US Dollar (59.5 percent) and Japanese Yen (13.0 percent). US dollar-denominated multi-currency loans from the World Bank and ADB represented 15.4 percent. The 12.0 percent balance pertained to 15 other currencies, including the Philippine Peso, Euro and SDR.

Source: Bangko Sentral ng Pilipinas (BSP)