COVID-19 measures push foreign debt to $87.4 billion

MANILA, Philippines — The country’s external debt inched up by 7.6 percent in the first semester and is seen rising further as the Philippines turns to the offshore debt market for more funds to soften the blow of the COVID-19 pandemic, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno said the country’s foreign obligations reached $87.45 billion as of end-June, or $6.19 billion higher than the $81.26 billion recorded in the same period last year.

He said the rise was due to the prior periods’ adjustments of $2.7 billion and the transfer of Philippine debt papers from residents to non-residents amounting to $2 billion.

The BSP chief also cited the net availments amounting to $1.4 billion as the government and the private sector borrow more from foreign creditors, as well as positive foreign exchange revaluation of $89 million amid the continued strengthening of the peso against the US dollar.

For the second quarter alone, Diokno said external debt increased by 7.4 percent from the end-March level of $81.4 billion.

He also attributed the rise in the debt stock during the second quarter to the net availments of $2.9 billion, including the $2.4 billion raised by the national government from the issuance of global bonds as well as another $3.1 billion borrowed from multilateral and bilateral creditors to fund its general financing requirements and COVID-19 pandemic response programs.

Likewise, further increases to the debt level from April to June were due to prior periods’ adjustments of $2.1 billion, the increase in non-residents’ investment in Philippine debt papers issued offshore of $839 million as well as the positive foreign exchange revaluation of $227 million as the greenback weakened against other currencies, including the peso.

Despite the rise in external debt, Diokno said the country’s key external debt indicators remained at prudent levels.

The BSP chief said the debt service ratio that measures the adequacy of the country’s foreign exchange earnings to meet maturing obligations improved to 7.8 percent in end June from 7.7 percent, while the external debt ratio grew to 23.7 percent from 21.4 percent.

Public sector external debt reached $51 billion and accounted for more than half or 58.3 percent of the country’s foreign debt. The national government accounted for 87 percent or $44.4 billion of the total, while government-owned and controlled corporations, government financial institutions and the central bank cornered the remaining 13 percent or $6.6 billion.

On the other hand, the external debt of private companies amounted to $36.5 billion for a share of 41.7 percent.

According to the BSP, major creditor countries include Japan with $15.3 billion followed by the US with $3.2 billion, Netherlands with $3.1 billion, and the United Kingdom with $2.6 billion.

Loans from official sources with multilateral lending institutions and bilateral creditors had the largest share of 34.9 percent, followed by foreign holders of bonds and notes with 33.6 percent, and obligations to foreign banks and other financial institutions at 26.3 percent.

In terms of currency mix, the country’s debt stock remained largely denominated in US dollar with 55.4 percent and Japanese yen with 12.4 percent. US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank represented 18.5 percent.

Data showed the maturity profile of the country’s external debt remained predominantly medium and long-term in nature with original maturities longer than one year with share to total at 87.7 percent, while short-term accounts with maturities of up to one year comprised the 12.3 percent balance.

Latest data from the central bank showed the country’s gross international reserves hit an all-time high of $98.95 billion in end August, about 7.6 times the country’s short-term external debt based on original maturity and 4.8 times based on residual maturity.

The national government borrows heavily from foreign and domestic creditors to finance the country’s budget deficit as it spends more than what it actually earns.