PHLs’ external debt declines in the second quarter of 2022

Outstanding external debt (EDT) declined in the second quarter of 2022. The country also recorded a lower external debt to Gross Domestic Product (GDP) ratio of 26.8 percent from 27.5 percent in the previous quarter. The ratio remains one of the lowest as compared to other ASEAN member countries.

The low EDT to GDP ratio, a solvency indicator, indicates the country’s sustained strong position to service foreign borrowings in the medium to long-term.

Other key external debt indicators also remained at prudent levels. Gross International Reserves (GIR) stood at US$100.9 billion as of end-June 2022 and represented 7.3 times cover for short -term (ST) debt based on the original maturity concept.

The debt service ratio (DSR) dropped to 5.0 percent from 9.5 percent recorded for the same period last year due to lower repayments accompanied by higher receipts.

The DSR, which relates principal and interest payments (debt service burden) to exports of goods and receipts from services and primary income, is a measure of adequacy of the country’s foreign exchange (FX) earnings to meet maturing obligations.

External Debt

External debt, which refers to all types of borrowings by Philippine residents from non-residents (following the residency criterion for international statistics), stood at US$107.7 billion as of end-June 2022, down by US$2.1 billion (or 1.9 percent) from the US$109.8 billion level as of end-March 2022.

The decrease in the debt level during the second quarter of 2022 was mainly due to negative FX revaluation of US$2.0 billion as the US Dollar strengthened against other currencies amid the Ukraine-Russia conflict and the US Federal Reserve’s recent policy actions to raise interest rates to curb inflation. The transfer of Philippine debt papers issued offshore (from non-residents to residents) of US$613 million and net repayments of US$86 million further contributed to the decline in the debt level, reducing the effect of prior periods’ adjustments of US$598 million.

Year-on-year, the country’s debt stock rose by US$6.5 billion. The increase was driven by net availments of US$12.5 billion, largely by the National Government (NG, US$8.5 billion) and prior periods’ adjustments of US$2.8 billion. Meanwhile, the transfer of Philippine debt papers from non-residents to residents of US$5.0 billion as well as the negative FX revaluation of US$3.8 billion partially tempered the increase in the debt stock for said period.

Debt Profile

As of end-June 2022, the maturity profile of the country’s external debt remained predominantly medium- and long-term (MLT) in nature [i.e., those with original maturities longer than one (1) year], with share to total at 87.1 percent. On the other hand, ST accounts [or those with original maturities of up to one (1) year] comprised the 12.9 percent balance of debt stock and consisted of bank liabilities, trade credits and others. The weighted average maturity for all MLT accounts remained at 16.9 years as compared to previous quarter, with public sector borrowings having a longer average term of 20.4 years compared to 7.1 years for the private sector. This means that FX requirements for debt payments are still well spread out and, thus, manageable.

Public sector external debt declined to US$65.7 billion (or by US$1.7 billion) as of end-June 2022 from US$67.4 billion as of end-March 2022. About US$57.7 billion (87.8 percent) of public sector obligations were NG borrowings while the remaining US$8.0 billion pertained to debt of government-owned and controlled corporations, government financial institutions and the BSP.

Private sector debt also declined from US$42.4 billion as of end-March 2022 to US$42.0 billion as of end-June 2022, albeit share to total increased from 38.6 percent to 39.0 percent. Prior periods’ adjustments of US$516 million was offset by: (a) net repayments of US$375 million; (b) increase in resident investments in Philippine debt papers issued offshore of US$369 million; and (c) negative FX revaluation of US$173 million.

Major creditor countries were Japan (US$13.8 billion), United Kingdom (US$3.6 billion) and The Netherlands (US$2.8 billion). Creditor mix continues to be well-diversified.

Loans from official sources (multilateral and bilateral creditors) had the largest share (37.4 percent) of total outstanding debt, followed by borrowings in the form of bonds/notes (34.9 percent) and obligations to foreign banks and other financial institutions (20.9 percent); the rest (6.9 percent) were owed to other creditors (mainly suppliers/exporters).

In terms of currency mix, the country’s debt stock remained largely denominated in US Dollar (56.2 percent) and Japanese Yen (9.0 percent). Multicurrency loans from the World Bank and Asian Development Bank represented 21.0 percent of total. The 13.8 percent balance pertained to 14 other currencies, including the Euro, Philippine Peso and Special Drawing Rights.