Philippines’ foreign debt pile rises to $98.5B in 2020

The Philippines’ running foreign debt stock piled up to as much as $98.5 billion as of the end of 2020 as need for external sources of funds — from both the public and private sectors — arose amid a challenging domestic economic and business environment brought by the COVID-19 pandemic.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed that the country’s external balance rose by $14.9 billion from $83.62 billion in 2019.

In an accompanying statement, BSP Governor Benjamin Diokno attributed the rise in foreign debt stock to the “net availments of $12.6 billion by the national government, increase in non-resident holdings of Philippine debt papers issued offshore of $1.8 billion; and positive foreign exchange revaluation of $1.5 billion.”

“The rise in the debt stock was partially tempered by prior periods’ adjustments of $1.1 billion,” Diokno said.

The BSP defines external debt as all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics.

In the fourth quarter alone, the foreign debt stock rose by 7.1% or $6.5 billion from end-September 2020’s level of $92 billion.

“The rise in the debt stock during the fourth quarter was due to net availments of $7.9 billion by both public and private sector borrowers,” Diokno said.

“During the quarter, the national government raised $2.8 billion from the issuance of Global bonds as well as $733 million net availments from official sources, to fund its COVID-19 pandemic response programs and various infrastructure development projects,” the central bank chief said.

He added that private local banks also leveraged on a strong Philippine peso versus the US dollar to diversify their portfolio and maintain a comfortable liquidity buffer over the year-end, leading to net availments of $3.0 billion. 

“The increase in foreign borrowings by private non-banks was due to net availments of $1.7 billion to augment their working capital,” the BSP chief said.

Diokno added that foreign exchange revaluation amounting to $544 million further contributed to the increase in the debt stock as the US dollar weakened against other currencies which may be attributed to expectations of continued stimulus in the United States, among others. 

“The rise of the debt stock was partially offset by prior periods’ adjustments of $1.6 billion and increase in residents’ investments in Philippine debt papers issued offshore of $410 million,” he said.
 
Prudent levels

Despite the increase in the country’s foreign debt level last year, the central bank chief said key external debt indicators remained at prudent levels. 

This, as the Philippines’ gross international reserves (GIR) — used as a buffer for liabilities — stood at $110.1 billion as of the end of 2020 and represented 7.8 times cover for short-term debt based on original maturity.
 
The debt service ratio (DSR), meanwhile, “improved” to 6.3% last year from 6.7% in 2019 “due largely to lower payments.”

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

“The DSR has consistently remained at single digit levels,” Diokno said.

Relative to the size of the economy as measured by gross domestic product (GDP), the country’s outstanding external debt increased to 27.2% from 22.2% year-on-year “as GDP contracted by 8.3% in the fourth quarter of 2020 and 9.5% for the full year 2020, while external debt rose.”

As of end-2020, the maturity profile of the country’s external debt remained predominantly medium- and long-term (MLT) in nature, meaning those with original maturities longer than one year.

The share to total of MLT loans stood at 85.6%. 

On the other hand, short-term loans accounts or those with original maturities of up to one year comprised the 14.4% balance of debt stock and consisted of bank liabilities, trade credits and others. 

“The weighted average maturity for all MLT accounts remained at 16.6 years, with public sector borrowings having a longer average term of 20.4 years compared to 7.3 years for the private sector,” Diokno said.

“This means that foreign exchange requirements for debt payments continued to be well spread out and, thus, manageable,” he added.

In particular, the public sector or the government’s foreign debt stood at $58.1 billion. 

The lion’s share or $51.9 billion of public sector obligations were national government borrowings while the remaining $6.3 billion pertained to loans of government-owned and controlled corporations, government financial institutions and the BSP.
 
Private sector debt, meanwhile, amounted to $40.4 billion as of end-2020.

The private sector’s share to the country’s external debt rose to 41% from 40.9%.

“The rise was due largely to net availments of $3.0 billion by private banks and $1.7 billion by private non-banks,” Diokno said.
 
The Philippines’ major creditor countries were Japan at $15.9 billion, US at $3.4 billion, United Kingdom at $3.3 billion, and The Netherlands at $3.0 billion.
 
The BSP said borrowings in the form of bonds or notes had the largest share of 35.6% to total outstanding external debt, followed by loans from official sources at 34.7%, obligations to foreign banks and other financial institutions is at 24.4%, and the rest 5.4% were owed to other creditor types mainly suppliers or exporters.

Loans from official sources or multilateral and bilateral creditors include Japan at $9.0 billion, China at $1.3 billion, and France and at $753 million, among others.

In terms of currency mix, the country’s debt stock remained largely denominated in US dollars at 56.7% and Japanese yen at 11.8%. 

“US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank represented 18.1% of total. The 13.4% balance pertained to 15 other currencies, including the Philippine Peso, Euro and SDR (special drawing rights),” Diokno said. —KG, GMA News