Foreign debt swells to $108 billion in September

MANILA, Philippines —  The country’s external debt continued to swell in end-September amid higher borrowings, both by the national government and the private sector, from offshore creditors, the Bangko Sentral ng Pilipinas (BSP) said.

Data released by the central bank showed the country’s external debt rose by 1.9 percent to $107.9 billion in end-September from $105.93 billion in the same period last year.

The increase was driven by net availments of $9.9 billion, largely by the national government with $5.5 billion, and prior periods’ adjustments of $1.5 billion.

The BSP said the transfer of Philippine debt papers from non-residents to residents of $4.9 billion as well as the negative foreign exchange revaluation of $4.5 billion partially tempered the increase in the debt stock for the period in review.

The strengthening of the dollar against major currencies including the peso helps temper the increase in foreign borrowings.

The level of external debt in end-September was also slightly higher than the end-June level of $107.7 billion.

According to the central bank, the increase in the debt level during the third quarter was due to net availments of $3.1 billion, partly offset by the $1.2 billion negative foreign exchange revaluation as well as the $893 million transfer of Philippine debt papers issued offshore from non-residents to residents and the $778 million negative prior periods’ adjustments.

“The bulk of the recorded availments during the quarter were from the increase in the reported short-term liabilities of banks as it sought the offshore market to meet its funding requirement for relending, investments and other foreign exchange transactions,” the BSP said.

The country’s external debt has been steadily rising – from $73.1 billion in 2017, $78.96 billion in 2018, $83.62 billion in 2019, $98.49 billion in 2020 and $106.43 billion in 2021.

Despite the increase, BSP Governor Felipe Medalla said the country’s outstanding external debt remained at prudent levels as its ratio to the gross domestic product (GDP) stood at 26.8 percent in the third quarter , reflecting a sustained strong position to service foreign borrowings in the medium to long-term.

“The ratio remains one of the lowest compared to other ASEAN member countries,” Medalla said.

He said the country’s gross international reserves (GIR) level stood at $93 billion as of end-September, equivalent to 5.7 times cover of the short-term debt.

The Philippines sustained the momentum of its recovery from the pandemic-induced recession with a GDP growth of 7.7 percent from January to September, faster than the 6.5 to 7.5 percent target penned by economic managers.

Data showed the debt service ratio dropped to 5.4 percent from 8.2 percent due to lower repayments accompanied by higher receipts.

Data showed public sector external debt declined by $928 million to $64.8 billion in end-September from $65.7 billion in end-June, accounting for 60 percent of the country’s foreign debt.

The national government accounted for 87.7 percent or $56.8 billion of the total public sector debt, while government-owned and controlled corporations, government financial institutions and the central bank cornered the remaining 12.3 percent or $8 billion.

Meanwhile, the foreign obligations of private companies climbed by 2.6 percent to $43.1 billion in end-September from $42 billion in end-June.

According to the BSP, major creditor countries are Japan ( $13.1 billion), the United Kingdom ($3.3 billion) and the US ($3.1 billion).

“Creditor mix continues to be well-diversified,” Medalla said.

Borrowings from multilateral lending institutions and bilateral creditors emerged as the largest share with 37.7 percent, followed by loans in the form of bonds or notes had the largest share with 34.6 percent, and obligations to foreign banks and other financial institutions with 22.5 percent.

The remaining 6.7 percent came from other creditors such as suppliers and exporters.

In terms of currency mix, the country’s debt stock remained largely denominated in dollar with 57.6 percent and Japanese yen with 8.3 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 84.8 percent, while short-term accounts with maturities of up to one year comprised the 15.2 percent balance.

“This means that foreign exchange requirements for debt payments are well spread out and, thus, manageable,” Medalla said.

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.