External debt down 1.9% at end September

MANILA, Philippines - The country’s outstanding external debt continued to ease in the first nine months of the year on the continued strengthening of the US dollar as well as higher investments in Philippine debt papers, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

BSP Gov. Amando Tetangco Jr. said external debt declined 1.9 percent to $75.61 billion from January to September this year compared to $77.09 billion in the same period last year.

Tetangco traced the decrease to higher investments by residents in Philippine debt papers amounting to $2.4 billion as well as the negative foreign exchange revaluation adjustments reaching $1.4 billion as the dollar strengthened with the gradual recovery of the US economy. 

However, he explained net availments amounting to $1.9 billion, coupled with previous audit periods’ adjustments worth $403 million mitigated the downward impact of the country’s external debt.

External debt refers to all types of borrowings by Philippine residents from non-residents. About 64.3 percent of the country’s external debt is denominated in US dollar, while 12.2 percent are in Japanese yen.

About 11.6 percent of the external debt are US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank, while 11.9 percent are denominated in 18 other currencies including the Philippine peso, with 7.2 percent comprising the special drawing rights of the International Monetary Fund (IMF) with 2.3 percent, and the euro with 1.6 percent. 

The country’s external debt in end September was 0.8 percent higher compared to the end June level of $75 billion. The slight increase was attributed to adjustments to reflect late reporting/corrections to previous periods’ transactions amounting to $419 million.

Likewise, the net availments of $960 million mainly by the private sector, consisting of bank borrowings or intercompany accounts as well as loans for relending to fund various economic activities, among others pushed up the country’s external debt.

The BSP said the upward impact of these developments on debt stock was partially offset by the transfer of Philippine debt papers from non-residents to residents amounting to $803 million amidst concerns on the interest rate lift off in the US. 

Despite the increase in the third quarter, Tetangco said the country’s external debt remained at comfortable levels.

 “Key external debt indicators were observed to have remained at comfortable levels in the third quarter of 2015”, the BSP chief said.

According to the BSP chief, the country’s gross international reserves (GIR) that stood at $80.55 billion as of end September represented cover of 5.5 times for short-term debt under the original maturity concept.

Data from the central bank also showed the external debt ratio or total outstanding debt expressed as a percentage of annual aggregate output slightly increased to 21.5 percent as of end-September from 21.2 percent at end June.

The same trend was observed using gross domestic product GDP as denominator. The country’s GDP growth accelerated to six percent in the third quarter from the revised 5.8 percent in the second quarter.

The debt service ratio continued to improve to 5.6 percent in September from six percent in June, and from 6.4 percent in September last year due to a larger decline in payments.

About 81 percent or P61.1 billion of the country’s outstanding external debt consisted of medium- and long-term accounts set to mature in over a year. The weighted average maturity of these accounts stood at 16.8 years.

“Thus, foreign exchange requirements for debt payments are well spread out and, therefore, more manageable,” Tetangco said.

The public sector debt amounting to $37.9 billion or 50.1 of the total external debt has an average tenor of 22.6 years due to the developmental nature of its borrowings.

On the other hand, private sector loans amounting to $37.7 billion or 49.9 percent of the total external debt had shorter average tenor of eight years coinciding with the payback period of projects financed by these borrowings.

On the other hand, short term accounts with maturities of less than one year comprised the 19.2 percent of the total external debt and consisted mainly of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposit liabilities.