PHL’s external debt ratios remain at prudent levels in the first quarter of 2022

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno announced that the Philippines’ outstanding external debt (EDT) remained manageable as the country recorded a 27.5 percent EDT to Gross Domestic Product (GDP) ratio (a solvency indicator) as of end-March 2022. The ratio remains one of the lowest as compared to other ASEAN member countries.

The low EDT to GDP ratio indicates the country’s sustained strong position to service foreign borrowings.

Diokno said that other key external debt indicators also remained at prudent levels. Gross International Reserves (GIR) stood at US$107.3 billion as of end-March 2022 and represented 7.7 times cover for short-term (ST) debt based on the original maturity concept.

The debt service ratio (DSR) dropped to 4.1 percent from 14.3 percent recorded for the same period last year due to scheduled 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$109.8 billion as of end-March 2022, up by US$3.3 billion (or 3.1 percent) from the US$106.4 billion level as of end-December 2021.

The rise in the debt level during the first quarter of 2022 was due to net availments of US$3.5 billion, mainly by the National Government (NG) and private non-banks. The NG raised US$2.3 billion from official creditors to fund its COVID-19 pandemic response programs and infrastructure projects as well as US$2.3 billion from the issuance of global bonds under its 2022 Commercial Borrowings Program.

The recent issuance includes the debut of NG’s sustainability bond which aims to finance climate change mitigation and adaptation projects, among others. On the other hand, non-bank private sector borrowers sought external credit amounting to US$995 million primarily to augment their working capital and finance their projects.

Prior periods’ adjustments of US$1.7 billion further contributed to the increase in the debt stock, while the transfer of Philippine debt papers issued offshore from non-residents to residents of US$1.0 billion and negative FX revaluation of US$841 million tempered the rise in the debt stock.

Year-on-year, the country’s debt stock rose by US$12.7 billion. The increase was driven by net availments of US$16.4 billion, largely by the NG (US$12.0 billion), and prior periods’ adjustments of US$3.2 billion. Meanwhile, the transfer of Philippine debt papers from non-residents to residents of US$5.1 billion as well as the negative FX revaluation of US$1.8 billion partially offset the increase in the debt stock for said period.


Debt Profile

As of end-March 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 87.2 percent. On the other hand, ST accounts [or those with original maturities of up to one (1) year] comprised the 12.8 percent balance of debt stock and consisted of bank liabilities, trade credits and others.

The weighted average maturity for all MLT accounts decreased to 16.9 years from 17.2 years during the previous quarter, with public sector borrowings having a longer average term of 20.5 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 increased to US$67.4 billion (or by US$3.4 billion) as of end-March 2022 from US$63.9 billion as of end-December 2021. About US$58.8 billion (87.3 percent) of public sector obligations were NG borrowings while the remaining US$8.5 billion pertained to loans of government-owned and controlled corporations, government financial institutions and the BSP.

Private sector debt slightly declined from US$42.5 billion as of end-2021 to US$42.4 billion as of end-March 2022, with share to total likewise decreasing from 39.9 percent to 38.6 percent. The contraction was due to a decrease in the liabilities reported by banks by US$2.0 billion and an increase in resident investments in Philippine debt papers issued offshore of US$663 million.

Major creditor countries were: Japan (US$14.5 billion), United Kingdom (US$3.7 billion), and The Netherlands (US$2.9 billion). Creditor mix continues to be well-diversified.

Loans from official sources (multilateral and bilateral creditors) had the largest share (37.8 percent) of total outstanding debt, followed by borrowings in the form of bonds/notes (34.6 percent) and obligations to foreign banks and other financial institutions (21.5 percent); the rest (6.1 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 (55.4 percent) and Japanese Yen (9.2 percent). Multicurrency loans from the World Bank and Asian Development Bank represented 20.8 percent of total. The 14.7 percent balance pertained to 14 other currencies, including the Euro, Philippine Peso and Special Drawing Rights.