BSP: Philippine external debt declines in Q2 2012

BANGKO Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. announced that the country’s outstanding external debt approved/registered by the BSP was recorded at US$62.5 billion as of end-June 2012, down by US$408 million (or 0.6 percent) from the US$62.9 billion level as of end-March 2012.

The decline resulted from: (a) net repayments totaling US$850 million as both public and private sector entities incurred lower new borrowings against loan repayments made; and (b) audit adjustments of US$116 million, which were partially offset by foreign exchange revaluation adjustments of US$486 million (due largely to the weakening of the U.S. Dollar against the Japanese Yen) and increased investments by non-residents in Philippine debt papers of US$72 million.

External debt refers to all types of borrowings by Philippine residents from non-residents that are approved/registered by the BSP.

On a year-on-year basis, the debt stock grew by US$1.1 billion (or 1.7 percent) due to net availments (US$172 million) and more investments by non-residents in Philippine debt papers (US$1.0 billion), indicating strong and sustained investor confidence in the country.

External debt ratios

The Governor noted that major external debt indicators remained at prudent levels in the second quarter. Gross international reserves (GIR) stood at US$76.1 billion in June 2012 and represented 10.8 times cover for short-term (ST) debt under the original maturity concept, and 7.3 times under the remaining maturity concept (the latter substantially higher than the international benchmark of 1.0). [ST accounts under the remaining maturity concept consist of obligations with original maturities of one (1) year or less, plus amortizations on medium and long-term accounts falling due within the next 12 months starting July 2012.]

The external debt ratio or outstanding external debt as a percentage of aggregate output (gross national income or GNI) is an indicator of solvency and reflects the country’s capacity to repay foreign obligations over a long-term horizon.  The ratio further improved to 20.1 percent from 20.7 percent in the first quarter and 21.7 percent a year ago.  The same improvement is observed using gross domestic product (GDP), with the ratio at 26.6 percent compared to 27.4 percent in March 2012 and 28.8 percent in June 2011.

The external debt service ratio (DSR, or principal and interest payments expressed as a percentage of exports of goods and receipts from services and income) is a measure of the sufficiency of foreign exchange to meet currently maturing obligations.  The DSR likewise improved to 7.9 percent by end June from 8.0 percent a quarter ago due to higher merchandise exports, despite the effects of prevailing conditions in the U.S. economy and the Euro zone. The ratio has stayed well below the 20 to 25 percent international benchmark, indicating a strong liquidity position relative to maturing obligations.

Debt profile

The external debt portfolio remained predominantly medium to long-term (MLT) in tenor, whose share to total debt stood at 88.8 percent.  [MLT loans are those with maturities longer than one (1) year.]  The larger share of MLT accounts means that the amount of scheduled debt payments are at comfortable levels, as these are spread out over a longer period of time.

The weighted average maturity for all MLT accounts stood at 20.5 years, with public sector borrowings having a longer average (22.0 years) compared to the private sector (10.9 years).

Short term external debt comprised the 11.2 percent balance of debt stock, and consisted largely of trade credits and inter-bank borrowings.

Public sector external debt slightly increased from US$48.3 billion to US$48.4 billion in June 2012 due to foreign exchange revaluation adjustments as the U.S. Dollar weakened, particularly against the Japanese Yen. Private sector external debt declined from US$14.6 billion to US$14.1 billion, mainly due to higher payments by the corporate sector.

The creditor profile remained unchanged: official creditors (consisting of multilateral and bilateral funders) continued to have the largest share at 42.5 percent of total, followed by foreign holders of bonds and notes (38.7 percent), foreign banks and other financial institutions (12.4 percent); the balance (6.4 percent) were mainly foreign suppliers/exporters.

Similarly, the currency composition of external debt was essentially maintained: U.S. dollar-denominated accounts represented nearly half (49.3 percent) of total,  Japanese Yen obligations at 25.5 percent, and multi-currency loans from the Asian Development Bank and the World Bank at 11.7 percent; the rest of the accounts (13.5 percent) were denominated in 18 other currencies.

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