Foreign debt growth eases in Q3 from Q2, Q1

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The country’s foreign debt stock grew $1 billion in the third quarter of this year to $76.6 billion from a year earlier, but the annual rate of growth slowed from the first two quarters of 2016.

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The year-on-year increase in the third quarter was traced to foreign exchange revaluation and non-resident investment in Philippine debt papers, central bank data showed over the weekend.

For the sequential slowdown in the rate of debt growth, the Bangko Sentral ng Pilipinas (BSP) report showed net repayments and adjustments to the debt amount “due to late reporting.”

Mitigating factors

The outstanding Philippine external debt as of end-September 2016 stood $1 billion higher than the $75.6 billion recorded in the first nine months of 2015. But quarter-on-quarter it was lower than $77.7 billion at end-June and $77.6 billion at end-March this year.

Annual growth in the quarter to September shows an easing to 1.3 percent, compared with 3.6 percent as of end-June and 3.1 percent as of end-March.

Growth in the debt stock as of end-September came as a result of foreign exchange revaluation ($1.6 billion) and increased non-resident investments in Philippine debt papers issued offshore ($428 million), the official data shows.

“The upward impact of these accounts on the debt level was partly mitigated by the net repayments ($981 million) and previous periods’ adjustments due to late reporting (negative $55 million),” the central bank said in the report.

On the quarter-on-quarter decline, the report attributed it to “negative prior period adjustments ($661 million) due to late reporting of principal payments; and net repayments by both public and private sectors ($582 million).”

The downward impact of these developments, the central bank pointed out, was partially offset by the foreign exchange revaluation adjustments amounting to $96 million as the Japanese yen strengthened against the US dollar; and transfer of Philippine debt papers from residents to non-residents amounting to $49 million.

External indicators ‘comfortable’

BSP Governor Amando Tetangco Jr. said key external debt indicators remained at comfortable levels in the third quarter of 2016, noting that the country’s gross international reserves stood at $86.1 billion as of end-September.

The external debt ratio—or the total outstanding debt expressed as a percentage of the annual aggregate output—stood at 21.1 percent, improving from the 21.5 percent level recorded a year earlier.

Using gross domestic product (GDP) as denominator—with growth at 7.1 percent in the third quarter of 2016 higher than the 7 percent in the previous quarter and 6 percent a year earlier—the central bank pointed out that even though the external debt level grew during the reference period, it did not grow at a rate faster than the overall economy.

The country’s debt service ratio (DSR), however, increased to 6.6 percent from 5.6 percent in 2015, but stayed well below the international benchmark range of 20 percent to 25 percent.

The DSR is a measure of the country’s adequacy to meet its obligations, based on foreign exchange earnings, by relating principal and interest payments to merchandise exports and receipts from services and primary income.

About 81.6 percent of the external debt is in medium- to long-term debts with maturities of more than one year.
This means foreign exchange requirements for debt payments are well spread out and–thus–more manageable, the BSP noted.

Govt debt vs private debt
Of the $76.6-billion foreign debt in the third quarter of 2016, 51.3 percent or $39.3 billion, was owed by the public sector – primarily government borrowings – while the rest, or $37.3 billion, was contracted by the private sector, or banks and companies.

About 33.2 percent of the outstanding foreign obligation is owed to foreign banks and other financial institutions, 31.6 percent to multilateral and bilateral creditors. About 29.2 percent is in the form of bonds or notes, while 6 percent is owed to foreign suppliers and exporters.

US debt still dominates
In terms of currency ratios, 63.2 percent of the foreign debt was US dollar-denominated, 13.8 percent in Japanese yen, 12.6 percent in multi-currency loans from international lenders World Bank and the Asian Development Bank, and 10.4 percent consisted of various obligations in 18 other currencies.

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