The Philippines’ foreign debt stock fell by $3.82 billion in the first quarter of 2017 from a year earlier due to principal repayments, adjustments made to the comparative periods to include late reports, and foreign exchange revaluation, central bank data showed over the weekend.
The outstanding Philippine external debt as of end-March 2017 stood at $73.8 billion, down from $77.64 billion recorded in the first three months of 2016 and down from $74.8 billion at end-December.
The year-on-year drop in foreign debt was traced to net principal repayments made by both the public and private sectors as of end-March, which reached $2.1 billion; previous periods’ audit adjustments that amounted to a negative $1.5 billion, due to late reporting; and negative foreign exchange revaluation adjustments worth $383 million.
“The full downward impact of these factors on the debt stock was slightly offset by a modest increase in non-residents’ investments in Philippine debt papers issued offshore ($126 million) during the period,” the central bank said in the report.
Explaining the quarter-on-quarter fall, the report said it was due to “prior periods’ adjustments (negative $673 million) due to late reporting of principal payments; transfer of Philippine debt papers from non-residents to residents ($497 million); and net principal repayments of $255 million.”
However, the central bank pointed out that the downward month-on-month impact of these developments on the debt stock was offset by the $466 million foreign exchange revaluation adjustments as the Japanese yen strengthened against the US dollar.
‘Comfortable’ external indicators
The key external debt indicators remained at comfortable levels during the first quarter of 2017, the report said, noting that the country’s gross international reserves stood at $80.9 billion as of end-March and represented 5.4 times cover for short-term (ST) debt under the original maturity concept.
The external debt ratio—or the total outstanding debt expressed as a percentage of the annual aggregate output—stood at 20 percent, improving from the 21.9 percent level recorded a year earlier.
“The same trend was observed using GDP [gross domestic product]as denominator, with the Philippine economy growing by 6.4 percent in the first quarter of 2017,” it said.
The country’s debt service ratio (DSR) also improved to 8.7 percent from the year-earlier 9.2 percent. However, the ratio increased from 6.9 percent as of end-2016 due to large payments during the first quarter of 2017, primarily bond redemptions at maturity by: national government ($523 million); two universal banks ($575 million); a mining company ($300 million); and a telecommunications company ($228 million).
Nevertheless, the debt service ratio stayed well below the international benchmark range of 20 percent to 25 percent, it said.
The debt service ratio 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 79.6 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 $73.8-billion foreign debt in the first quarter of 2017, 51 percent or $37.7 billion, was owed by the public sector – primarily government borrowings – while the rest, or $36.1 billion, was contracted by the private sector, or banks and companies.
About 33.8 percent of the outstanding foreign obligation was owed to foreign banks and other financial institutions, 32 percent to multilateral and bilateral creditors. About 27.8 percent was in the form of bonds or notes, while 6.4 percent was owed to foreign suppliers and exporters.
In terms of currency ratios, 63.4 percent of the foreign debt was US dollar-denominated, 12.6 percent in Japanese yen, 13.6 percent in multi-currency loans from international lenders World Bank and the Asian Development Bank, and 10.5 percent consisted of various obligations in 17 other currencies.