External debt hits record USD 118.8 billion at end-March

Outstanding external debt hit a record USD 118.812 billion at the end of the first quarter, the Bangko Sentral ng Pilipinas (BSP) said.

Preliminary data from the BSP showed that external debt was up by 8.3% from the USD 109.753 billion seen as of March 2022. It was also higher by 6.8% from the $111.268 billion in end-2022.

External debt includes all types of borrowings by residents from nonresidents.

“The rise in the debt level during the first quarter of 2023 was driven primarily by the aforesaid statistical adjustment involving the inclusion of the nonresident holdings of peso-denominated debt securities issued onshore in the debt stock,” the BSP said.

The growth of the country’s debt stock was also driven by net availments of the National Government (NG) worth USD 2.7 billion from the issuance of multi-tranche global bonds, prior periods’ adjustments of $767 million, and the appreciation of other currencies against the US dollar.

“The increase in foreign debt may have been attributed to the new global bond issuance and other commercial sources earlier in 2023, as well as foreign borrowings for official development assistance (ODA) and other multilateral sources,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

In January, the government raised $3 billion from its first dollar bond issuance for the year.

“Year on year, the country’s debt stock rose by USD 9.1 billion. The increase was driven by net availments of USD 7.6 billion, of which USD 7.4 billion pertain to NG borrowings; inclusion of nonresidents holdings of peso-denominated debt securities worth $3.8 billion and prior periods’ adjustments of $646 million,” the BSP said.

“Meanwhile, the transfer of Philippine debt papers from nonresidents to residents of USD 1.7 billion and negative foreign exchange revaluation of $1.3 billion partially tempered the increase in the debt stock for the said period,” it added.

External debt was equivalent to 29% of gross domestic product (GDP) at end-March, higher than the debt-to-GDP ratio of 27.5% in the same period a year ago, as well as the 27.5% logged at end-2022.

The BSP said this was due to a “change in the scope of the external debt stock to include nonresident holdings of peso-denominated debt securities issued onshore worth $3.8 billion.”

“The country’s external debt-to-GDP ratio is still relatively lower compared to most Asian countries, given the larger share of domestic borrowings in the government’s borrowings for many years already, as part of the prudent stance to manage foreign exchange risks involved in foreign borrowings,” Mr. Ricafort added.

Meanwhile, the debt service ratio (DSR) jumped to 12.9% from 4% a year ago amid higher recorded repayments. The DSR is a gauge of the adequacy of foreign exchange earnings to meet maturing debt obligations.

Borrowings by the public sector rose by 11.5% to USD 75.2 billion as of end-March from USD 67.4 billion the quarter earlier.

“About $68.1 billion (90%) of public sector obligations were NG borrowings, while the remaining USD 7.1 billion pertained to loans of government-owned and -controlled corporations, government financial institutions and the BSP,” it added.

Meanwhile, private sector debt slipped by 0.7% to USD 43.6 billion from USD 43.9 billion as of end-2022.

The BSP said net repayments worth $1.3 billion offset prior periods’ adjustments of $707 million, with the net acquisition of Philippine debt securities by nonresidents from residents worth $251 million, and positive foreign exchange revaluation of USD 59 million.

Japan (USD 14.3 billion), the United States (USD 3.6 billion), and the United Kingdom (USD 3.2 billion) were the Philippines’ top creditor countries at end-March.

Loans from multilateral and bilateral sources accounted for 37.9% of all external borrowings.

Other sources were bonds (35.2%) and foreign banks and other financial institutions (20.9%), while the remainder (5.9%) was owed to suppliers and foreign exporters.

Mr. Ricafort said foreign currency risks can be hedged “especially if payment of principal and interest come from domestic sources denominated in pesos, thereby any increase in the US dollar versus the peso tends to increase the country’s debt payments.”

“Other than heading foreign exchange risks that are entailed in foreign debt, another mitigating factor is to lengthen the tenor of foreign borrowings over the long-term to properly manage maturities and avoid bunching up maturities over the short-term,” he added. — Luisa Maria Jacinta C. Jocson