PH external debt falls first half of 2015

MANILA, Philippines – The country’s external debt fell 19% in the first half of 2015, attributed to the continued weakening of regional currencies against the US dollar in anticipation of an interest rate lift off by the US Federal Reserve (US Fed).

External debt covers all types of borrowings by Philippine residents from non-residents following the residency criterion for international statistics such as the balance of payments (BOP).

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr said on Friday, September 18, that the country’s external debt reached $75 billion from January to June this year – $3.6 billion lower compared to $78.59 billion in the same period in 2014.

Tetangco traced the decline to negative foreign exchange revaluation adjustments amounting to $2.6 billion as the US economy continued to gradually recover, resulting in a stronger US dollar.

The increase in residents’ investments in Philippine debt papers amounted to $835 million, as well as the previous periods’ adjustments, resulting in a $134 million reduction.

Data also showed the country’s external debt in end-June declined by $321 million, from the end-March level of $75.3 billion. This was attributed to the transfer of Philippine debt papers from non-residents to residents amounting to $1 billion amid growing concerns about the anticipated rate hike by the US Fed.

The US Fed left short-term interest rates unchanged on September 17, "putting off a historic move to end an era of ultra-cheap credit amid worries about weak growth overseas," The Wall Street Journal reported.

“In light of the developments that we have seen and the impacts on financial markets, we want to take a little bit more time to evaluate the likely impacts on the United States,” The Wall Street Journal quoted US Fed chairwoman Janet Yellen as saying.

Japanese yen

The BSP also noted the $162-million negative foreign exchange revaluation adjustment amid the continued weakening of the Japanese yen against the US dollar. Japan has allowed its currency to weaken against the greenback as part of efforts to revive its economy by helping exporters become more competitive.

The national government, meanwhile, availed of $875 million in net loans in the first half of the year, slightly offsetting the decline in the country’s external debt.

The country’s external debt ratio improved to 21.3% in end-June this year from 23.5% in end-June 2014. The debt service ratio also improved to 5.9% from 6.9%. 

The external debt ratio is a solvency indicator. The debt service ratio is a measure of the adequacy of the country’s foreign exchange earnings to meet maturing obligations.

“Key external debt indicators were observed to have remained at very prudent levels in the second quarter of 2015,” Tetangco said in a statement.

The country’s foreign exchange requirements for debt payments are well spread out and more manageable as 82.4% of the total external debt are medium- to long-term accounts with maturities longer than a year.

The weighted average maturity for these accounts stood at 16.8 years, with public sector borrowings having a longer average tenor of 22.5 years versus 8.1 years for the private sector.

Short-term external debt comprised the 17.4% balance of the debt stock, consisting largely of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposits of non-residents.

Public sector external debt stood at $39.1 billion or 52% of total debt stock. Private sector debt accounted for 48% or $36.2 billion.

Debt sources

Data showed 64.6% of the country’s external debt is denominated in US dollars, followed by the Japanese yen with a share of 12.7%.

US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank comprised 10.4% of the total. The remaining 12.3% pertained to 17 other currencies.

The BSP also reported that the country’s gross international reserves (GIR) stood at $80.6 billion as of end-June, enough to cover 6.1 times of short-term loans. – Rappler.com