Foreign debt rises 8%

OUTSTANDING foreign debt rose 8% in 2018 as companies and the national government resorted to foreign sources for funding, the Bangko Sentral ng Pilipinas (BSP) said.

External debt grew to $79 billion at the end of 2018 from the year-earlier total of $73.1 billion, the central bank said late Friday.

Last year, the government borrowed $3.5 billion from external creditors, while the private sector availed of $3.2 billion worth of overseas loans.

The government’s external debt rose to $39.7 billion at the end of 2018 from $39.5 billion at the end of the third quarter. Its share of total external debt declined to 50.3% from the previous quarter’s 51.8%.

Meanwhile, the private sector’s overseas obligations “substantially” increased to $39.3 billion at the end of the year from the end-September level of $36.9 billion, with its share of the total increasing to 49.7% from the previous quarter’s 48.2%.

The central bank attributed the year-on-year growth of external debt to the government’s increased financing needs for its infrastructure and social spending programs.

Banks were also preparing for the higher liquidity coverage ratio threshold prescribed by the Basel 3 reform package issued by the Basel Committee on Banking Supervision, while also seeking additional funding for their purchases of Philippine sovereign debt.

The central bank also attributed the higher foreign debt to the private sector’s increased working capital needs, expanded funding base and extended term liabilities.

External debt refers to all types of borrowing by Philippine residents from non-residents, following the residency criterion for international statistics.

In the fourth quarter, outstanding foreign debt rose 3.3% compared with the end-September level of $76.4 billion.

At the end of 2018, the maturity profile of the foreign debt remained predominantly mediumto long-term (MLT) in nature, or those with original maturities longer than one year, accounting for 79.7% of the total or $62.9 billion.

Meanwhile, short-term accounts comprised 20.3% of the debt stock, mainly bank liabilities, trade credits and others.

“The weighted average maturity for all MLT accounts remained at 17.0 years in December 2018, with public sector borrowings having a longer average term of 21.3 years compared to 7.7 years for the private sector,” the BSP said.

“This means that FX requirements for debt payments are well spread out and, thus, more manageable.

Japan was the biggest creditor at $14.4 billion. This was followed by the United States ($4 billion), the Netherlands ($3.6 billion) and the UK ($3.2 billion).

Obligations to foreign banks and other financial institutions accounted for the largest share of outstanding debt at 33.6%.

Loans from official sources stood at 31.2%, broken down into multilateral creditors (17.4%) and bilateral creditors (13.8%).

Bilateral loans amounted to $10.9 billion, with Japan providing $7.9 billion, China $772 million and Germany $426 million.

Foreign debt remained largely dollar-denominated at 61.1% while yen debt accounted for 13.2%.

The BSP also said the debt service ratio — a measure of the adequacy of foreign exchange earnings to meet maturing debt obligations — was 6.3% at the end of 2018 from 6.2% a year earlier.

The external debt ratio — or total outstanding debt as a percentage of Gross National Income — measures solvency. It grew to 19.9% at the end of September from 19.4% a year earlier, indicating the country’s “sustained strong position” to service offshore borrowings in the medium to long term. —