More local borrowings trim external debt to $73.1 B

MANILA, Philippines — The country’s external debt slipped 2.2 percent last year due to the shift in preference to domestic borrowings as well as higher prepayments due to the strong US dollar.

The Bangko Sentral ng Pilipinas (BSP) yesterday reported that the country’s external debt stood at $73.1 billion last year or $1.66 billion lower than the $74.76 billion recorded in 2016.

This translated to a lower external debt to gross domestic product (GDP) ratio of 23.3 percent for 2017 from 24.5 percent in 2016. The country’s GDP grew 6.6 percent in the last quarter from the revised seven percent in the third quarter, bringing the 2017 growth to 6.7 percent.

BSP Governor Nestor Espenilla Jr. said the external debt of the private sector went down by 4.6 percent to $35.6 billion last year from $37.3 billion in 2016.

He attributed the decline to the non-bank sector, whose foreign loans decreased to $20.2 billion from $22.2 billion.

Espenilla said the decline is consistent with the downward trend in loans from commercial sources or banks and other financial institutions that are main sources of corporate funding to $22.5 billion from $25.8 billion.

He added that the decrease also translated to a drop in dollar-denominated borrowings to $45.6 billion from $48.6 billion.

“These developments may be indicative of Philippine corporate borrowers’ deleveraging from foreign borrowings to minimize foreign exchange risk, among others,” the BSP chief said.

Espenilla said the country’s external debt was one percent higher compared to the end-September level of $72.4 billion, primarily due to the $1.3 billion increase in the holdings of Philippine debt papers by non-residents, reflecting sustained investor interest in the country.

He said positive foreign exchange revaluation adjustments amounting to $70 million contributed to the increase in the debt stock as the peso strengthened against the dollar during the last quarter of 2017 due to strong remittances and equity inflows.

The peso shed 21 centavos to close 2017 at 49.93 to $1 from 49.72 in end 2016, escaping the tag as the worst performing currency in the region after depreciating by more than four percent as it flirted with the 52 to $1 level.

Furthermore, he said net principal repayments amounting to $643 million by both public and private sector borrowers had a dampening effect on debt stock.

Espenilla said the key external debt indicators remained at comfortable levels in 2017 as the gross international reserves (GIR) of $81.6 billion represented 5.7 times cover for short-term (ST) debt under the original maturity concept.

Furthermore, the debt service ratio (DSR) improved to 6.2 percent from seven percent due to higher receipts and lower payments and consistently remained well below the international benchmark range of 20 to 25 percent.

The country’s external debt remained largely medium- to long-term in nature with maturities longer than one year and represented 80.5 percent of total. Its weighted average maturity stood at 17.3 years, with public sector borrowings having a longer average term of 23.1 years compared to 7.8 years for the private sector.

On the other hand, short-term liabilities comprised the 19.5 percent balance of debt stock and consisted of bank liabilities, trade credits and others.

Data showed the debt stock remained largely denominated in US dollar accounting for 62.4 percent and Japanese yen with 12.8 percent.

The dollar-denominated multi-currency loans from the World Bank and the Asian Development Bank represented 14 percent of total, while the 10.7 percent balance pertained to 17 other currencies, including the Philippine peso with 6.5 percent and the International Monetary Fund with 2.1 percent.