Drops 3.8% to $74.76B at end-Dec
The Philippines’ foreign debt stock dropped 3.8 percent year-on-year in 2016 to $74.76 billion as debt repayments increased, resulting in a lower external debt ratio measured against the country’s aggregate output, the central bank said.
However, the debt service ratio, although higher, still stayed well below the international benchmark range of 20 percent to 25 percent.
But the central bank noted that the bulk of the Philippines’ external debt is in medium- to long-term obligations with maturities of more than one year.
That means the foreign exchange requirements for debt payments are “well spread out and – thus – manageable,” the Bangko Sentral ng Pilipinas (BSP) said.
$2.7B drop in debt stock
External debt is the overall borrowing of Philippine residents from non-residents or foreign individuals, companies and organizations.
The decline in external debt becomes more substantial in absolute terms, especially when compared with the drop in the year earlier.
The outstanding Philippine external debt as of end-December 2016 fell by $2.71 billion to $74.76 billion from $77.47 billion in full-year 2015.
The BSP attributed the decline in foreign debt mainly to net repayments, audit adjustments and foreign exchange revaluation.
That 3.8 percent decline as of end2016 compares with a cut of only 0.25 percent or $200 million in foreign debt to $77.47 billion at the end of 2015 from $77.67 billion at the end of 2014.
Year-on-year, the debt stock dropped due to net principal repayments by both the public and private sectors ($3.4 billion); previous periods’ audit adjustments (negative $168 million) due to late reporting; and negative (downward) foreign exchange revaluation adjustments ($36 million).
“However, the full downward impact of these factors on debt stock was partly offset by an increase in non-residents’ investments in Philippine debt papers issued offshore ($846 million),” BSP Governo Amando Tetangco Jr. was quoted as saying.
The lower end-2016 debt stock also shows a contraction by $1.8 million from the $76.6 billion registered as of end-September last year.
The BSP attributed the quarter-on-quarter decrease to “downward foreign exchange revaluation adjustments of $1.8 billion as the US dollar strengthened against third currencies, particularly the Japanese yen ($1.4 billion); net principal repayments of $611 million, mainly by the national government and the Power Sector Assets and Liabilities Management Corp.; and prior periods’ audit adjustments (negative $73 million). “
However, Tetangco added: “The downward impact of these developments on the debt stock was partially offset by the $591 million transfer of Philippine debt papers from residents to non-residents which had the effect of increasing outstanding external debt.”
Debt ratio improves
According to the central bank, the external debt ratio—or the total outstanding debt expressed as a percentage of the annual aggregate output—stood at 20.4 percent, down from the 21.9 percent level recorded a year earlier.
Using gross domestic product (GDP) as denominator, the ratio was also lower at 24.6 percent from 26.5 percent, with the economy posting 6.8 percent growth in 2016.
The country’s debt service ratio (DSR) increased slightly to 6.9 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 80.6 percent of the external debt is in medium- to long-term debts with maturities of more than one year.
The BSP sees the foreign exchange requirements for debt payments as well spread out and therefore, manageable.
Of the $74.76-billion foreign debt in 2016, about 50.1 percent or $37.5 billion was owed by the public sector—primarily government borrowings—while the rest or $37.29 billion was contracted by the private sector, or banks and companies.
About 34.5 percent of the outstanding foreign obligation is owed to foreign banks and other financial institutions, 30.6 percent to multilateral and bilateral creditors. About 29.3 percent is in the form of bonds or notes, while 5.6 percent is owed to foreign suppliers and exporters.
In terms of currency ratios, 65.1 percent of the foreign debt was US dollar-denominated, 12 percent in Japanese yen, 12.8 percent in multi-currency loans from international lenders World Bank and the Asian Development Bank, and 10.1 percent was from various obligations in 17 other currencies.