PH External Debt Ratios Still at Prudent Levels

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno, announced in a statement over the weekend that the Philippines’ outstanding external debt stood at USD79.0 billion as of end-2018, up by USD2.5 billion (or 3.3 percent) from the end-September 2018 level of USD76.4 billion.

The growth in the debt level during the quarter was due largely to net availments of USD1.6 billion as private banks borrowed offshore to fund purchases of: a) high-quality liquid assets in preparation for the increase in the Liquidity Coverage Ratio (LCR) threshold as part of the Basel 3 reform package issued by the Basel Committee on Banking Supervision; and b) Republic of the Philippines (RP) bills, among others.

Positive foreign exchange (FX) revaluation adjustments amounting to USD1.0 billion further contributed to the increase in the debt stock as the Philippine peso appreciated against the US dollar during the reference period due mainly to improving domestic inflation data and strong remittance inflow. The rise in the debt stock was partially offset by USD139-million increase in residents’ investments in Philippine debt papers issued offshore.

Year-on-year, the debt stock grew by 8.0 percent from the end-2017 level of USD73.1 billion due largely to net availments by both public (USD3.5 billion) and private sectors (USD3.2 billion). Specifically, this is attributed to the national government (NG)’s increased financing for its infrastructure development and social spending programs, private banks’ preparation for the increase in the LCR threshold under the Basel 3 liquidity rule and to source funding for purchases of RP bills while other private firms decided to increase working capital, expand funding base, and extend term liabilities.

Prior periods’ adjustments (USD594 million) further increased the debt levels. However, the increase in resident holdings of Philippine debt papers issued offshore (USD1.2 billion) and negative FX revaluation adjustments (USD125 million) partially tempered the sharp increase in the debt stock during the year.

External debt refers to all types of borrowings by Philippine residents from non-residents, following the residency criterion for international statistics. (BSP PR)