PH External Debt Indicators Still Reasonable

The country’s external debt ratios remained at a reasonable level in the fourth quarter despite rising borrowing, Bangko Sentral ng Pilipinas (BSP) reported late Friday.

As a percentage of gross domestic product (GDP), external debt (EDT) rose to 27.7 percent at the end of 2022 from 26.8 percent three months earlier. It was also higher than the 27 percent posted in the fourth quarter of 2021.

“The EDT-to-GDP ratio of 27.5% is indicative of a manageable level of debt, as well as a sustainable ability of the country to service foreign loans in the medium to long term,” the central bank said in a statement.

EDT applies to all types of borrowing by Filipino residents from non-residents.

Meanwhile, the debt service ratio (DSR) improved to 6.3 percent from 7.5 percent due to higher receipts and lower repayments throughout the year.

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The DSR, which links principal payments and interest payments – the burden of debt service (DBS) – to exports of goods and services and primary income, is a measure of the sufficiency of foreign exchange earnings to meet maturing obligations.

Outstanding external debt rose to $111.3 billion at the end of 2022, the central bank said, up $3.4 billion or 3.1% from the $107.9 billion announced three months earlier.

Meanwhile, DSB increased to $8.59 billion from $9.12 billion a year earlier.

At the end of 2022, gross international reserves stood at $96.1 billion, which is 5.8 times the country’s short-term debt, according to the BSP. However, since 2021, this level has decreased to $108.8 billion.

The increase in external debt in the fourth quarter was mainly due to net receipts of US$1.8 billion, external financing of US$786 million raised by private sector banks and a positive foreign exchange revaluation of US$1.5 billion.

Revaluation adjustments for the previous quarter of $59 million also contributed.

BSP noted that the government has issued $2 billion in global bonds, banks have shifted to supporting re-lending and maturing obligations, and a weaker dollar has increased the dollar-denominated borrowings denominated in other currencies.

The country’s debt stock was $4.8 billion higher compared to 2021 due to net availability of $8.4 billion, mostly from the national government, and $1.6 billion from prior quarter adjustments.

This was offset by a negative foreign exchange revaluation of US$2.6 billion and a gain of US$2.6 billion from residents’ investment in overseas-issued Philippine debt.

The repayment profile of the country’s external debt remained predominantly medium-term and long-term (MLT) at the end of last year with a total share of 85.1 percent.

The weighted average maturity for all MLT accounts rose to 17.2 years from 16.9 years qoq, with the public sector’s average borrowing age longer at 20.6 years compared to 7.0 years for the private sector.

Short-term accounts or accounts with original maturities of less than one year accounted for 14.9 percent of existing debt and included bank liabilities, trade credits and others.

“This means that foreign currency claims for debt repayments are still widespread and thus manageable,” the central bank said.

Meanwhile, 56.5% of MLT accounts are reported to have fixed interest rates, 41.7% floating coupon rates and 1.8% interest-free.

Public sector external debt increased to $67.4 billion from $64.8 billion in the previous quarter, while its share in the total increased slightly to 60.6 percent from 60.0 percent.

National government borrowing accounted for $59.8 billion (88.7 percent) of public sector liabilities, with the remaining $7.6 billion coming from government and controlled corporations, public financial institutions, and BSP itself.

Meanwhile, private sector debt rose to $43.9 billion at the end of last year from $43.1 billion three months earlier. However, its share in the total debt decreased to 39.4 percent from 40.0 percent.

Growth was driven primarily by net receipts of $354 million, transfers of Philippine debt instruments from residents to non-residents totaling $228 million, and foreign exchange gains of $116 million.

Japan ($14.7 billion), the United States of America ($3.5 billion) and the UK ($3.2 billion) were the country’s biggest creditors.

Loans from official sources accounted for the largest share in the total outstanding debt – 37.9 percent. This is followed by bonds and bills (33.1%), liabilities to foreign banks and other financial institutions (22.9%) and other creditors (6.1%).

Philippine debt is still denominated primarily in dollars (77.9 percent) and yen (8.8 percent), with 13.3 percent in 15 currencies, including the euro, Philippine peso and Special Drawing Rights.