Foreign debts remain still at comfortable levels

 

 

By Rose de la Cruz

 

The Bangko Sentral ng Pilipinas said the country’s foreign debts as of end-2017 remained at comfortable level at $73.1 billion, up by $730 million or 1 percent over that of September 2017 level of $72.4 billion.

 

BSP Governor Nestor Espenilla said the growth in the debt level during the quarter was due largely to the $1.3 billion increase in the holdings of Philippine debt papers by non-residents, reflecting sustained investor interest in the country.

 

Positive foreign exchange (FX) revaluation adjustments ($70 million) contributed to the increase in the debt stock as the Philippine peso strengthened against the US Dollar during the last quarter of 2017 due to strong remittances and equity inflows.

 

Repayments

 

Net principal repayments ($643 million) by both public and private sector borrowers had a dampening effect on debt stock. During the year, private sector accounts declined by $1.7 billion (or 4.6 percent) from $37.3 billion in 2016 to $35.6 billion. The decline is mainly attributed to the non-bank sector, whose foreign loans decreased from $22.2 billion a year ago to $20.2 billion in 2017.

 

This is consistent with the downward trend in loans from commercial sources (banks and other financial institutions, which are main sources of corporate funding), from the $25.8 billion level recorded a year ago to $22.5 billion.

 

Espenilla said the noted decrease also translated to a drop in US Dollar denominated borrowings from $48.6 billion to $45.6 billion (or by $3.0 billion) during the year.

 

Deleveraging

 

These developments may be indicative of Philippine corporate borrowers' deleveraging from foreign borrowings to minimize foreign exchange risk, among others.

 

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

 

Espenilla also stated that key external debt indicators remained at comfortable levels in 2017. Gross international reserves (GIR) stood at $81.6 billion as of end-2017 and represented 5.7 times cover for short-term (ST) debt under the original maturity concept.

 

DSR improves

 

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-December 2017, the ratio improved to 6.2 percent compared to 7.0 percent recorded for the same period a year ago due to higher receipts and lower payments during the 12-month period (January 2017 - December 2017).

 

The DSR has also consistently remained well below the international benchmark range of 20.0 to 25.0 percent. Page 2 of 2 The external debt ratio (a solvency indicator), or total outstanding debt expressed as a percentage of annual aggregate output (GNI), remained at 19.4 percent, similar to last quarter's figure, but reflected an improvement from 20.4 percent a year ago.

 

GDP

 

The same improving trend was observed using GDP as denominator, with the Philippine economy growing by 6.6 percent in the last quarter of 2017 and by 6.7 percent for the entire year. Debt Profile

 

The country's external debt remained largely medium- to long-term (MLT) in nature and represented 80.5 percent of total. This means that FX requirements for debt payments are well spread out and, thus, more manageable. [MLT accounts are those with maturities longer than one (1) year.]

 

The weighted average maturity of MLT accounts stood at 17.3 years, with public sector borrowings having a longer average term of 23.1 years compared to 7.8 years for the private sector. ST liabilities comprised the 19.5 percent balance of debt stock and consisted of bank liabilities, trade credits and others.

 

Public debts

 

Public sector external debt rose to $37.5 billion from $37.2 billion in the previous quarter, although share to total declined from 51.4 percent to 51.3 percent. Net principal repayments of $579 million recorded during the quarter were fully offset by the increase in non-residents' investment in debt papers issued abroad ($820 million) as well as upward FX revaluation adjustments ($50 million).

 

About $31.0 billion (82.7 percent) of public sector obligations were NG borrowings. Private sector debt likewise grew from $35.1 billion in September 2017 to US$35.6 billion, with share to total increasing from 48.6 percent to 48.7 percent.

 

The increase was due largely to higher investments by non-residents in private sector debt papers ($485 million). About $12.3 billion of these accounts were obtained without BSP approval, while capital leases amounted to $1.2 billion. Loans from official sources (multilateral and bilateral creditors - $23.8 billion) and foreign banks and other financial institutions ($22.5 billion) comprised the largest share of total outstanding debt at 32.5 percent and 30.8 percent, respectively.

 

Borrowings in the form of bonds/notes held by non-residents ($21.8 billion) accounted for 29.8 percent, while the rest ($5.0 billion or 6.9 percent) were mostly owed to foreign suppliers/exporters. In terms of currency mix, the country's debt stock remained largely denominated in US Dollar (62.4 percent) and Japanese Yen (12.8 percent).

 

US dollar-denominated multi-currency loans from the World Bank and ADB had a 14.0 percent share to total, while the remaining 10.7 percent balance pertained to 17 other currencies, including the Philippine Peso (6.5 percent) and SDR (2.1 percent).

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