External debt service down 9.9% to $2.9 billion

The country’s external debt service burden decreased by 9.94 percent as of end-May to $2.909 billion from same time last year of $3.230 billion, based on data from the Bangko Sentral ng Pilipinas (BSP).

During the period, principal debt service burden stood at $1.852 billion which was 15.12 percent lower yearon-year or from $2.182 billion. Interest payments, in the meantime, hardly changed at $1.057 billion compared to the previous year’s $1.047 billion.

The debt service ratio, which relates principal and interest payments to exports of goods and receipts from services and primary income, measures the adequacy of the country’s foreign exchange earnings to meet maturing obligations. In fact the debt service ratio has consistently remained at single digit level. As of end-March, the ratio is at 7.6 percent, lower than same time in 2017 of 9.1 percent.

At the end of the first quarter, the public sector external debt totaled $39.2 billion while private sector debt was at $34 billion for a total outstanding external debt of $73.2 billion. Overall debt was down by 0.8 percent year-on-year because of a $3.4 billion worth of net repayments from the private sector’s short term non-trade accounts.

BSP Governor Nestor A. Espenilla Jr. said the country’s external debt metrics continue to be favorable as external debt to GDP ratio has sustained its decline in the last 10 years.

As of end-March, debt to GDP ratio stood at 23 percent which was lower than the previous year’s 24 percent. The external debt ratio – a solvency indicator – has likewise improved to 19.1 percent from 20 percent same time in 2017.

For the second year in a row, the BSP is not imposing a ceiling on all foreign borrowing, citing its liberalized foreign exchange rules which considerably changed the way banks and the corporate sector source their foreign currency requirement.

The BSP’s foreign borrowing cap is for both the public or government sector, and the private sector. While the central bank has in effect left the private sector to its own foreign borrowing plan and they could borrow how much they want, the monitoring of all government foreign borrowing remains strictly mandatory.

The BSP reviews the private sector’s yearly foreign borrowing plans as part of its external debt management measures. These are banks, foreign parent companies and affiliates, and they borrow offshore via the issuance of bonds or securities in the international capital markets.

The last time the BSP has set a foreign borrowing limit was two years ago of $5 billion. The highest ceiling was in 2010 worth $12 billion.

The central bank, which regularly reviews the effectiveness of imposing annual ceilings on foreign loans and its impact on controlling the size of Philippine debt, implemented higher limits in 2010 and 2011 as there was a need at the time for more foreign currency denominated loans to finance the government’s public-private partnership program.