PH ability to pay foreign obligations improves

Debt service burden-to-total export earnings ratio better than global standards

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10:11 PM April 8th, 2013

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By: Michelle V. Remo, April 8th, 2013 10:11 PM

The ability of the Philippines to pay its foreign debts improved significantly in 2012, with the country’s debt service burden (DBS) ratio to total foreign exchange revenue falling below 10 percent, which was better than international standards.

The ratio went down to 7.4 percent last year, from 10.2 percent in 2011, the Bangko Sentral ng Pilipinas said in a report. The ratio is well below the international benchmark of 25 percent, any figure above which is considered uncomfortable, the BSP noted.

“The current DSB ratio is below the 25-percent international benchmark, indicating that the country has sufficient foreign exchange earnings to service maturing principal and interest payments during the current period,” the central bank said in the report.

DBS ratio is the proportion of foreign debt payments, both principal and interests, made by the government and private entities to the country’s foreign-exchange revenues from the exportation of goods and services.

According to the central bank, government and private entities in the Philippines paid $6.6 billion worth of foreign currency-denominated debts, down by 17.5 percent from $8 billion recorded a year ago.

The BSP said the decline in the DBS ratio was one of the key indicators that showed the country’s improved credit worthiness.

The progress in the country’s credit standing in the international investment community was formally recognized last month, when Fitch Ratings gave the Philippines its first-ever investment grade from a major international credit rating agency.

Fitch raised its rating for the Philippines from BB+ to BBB-, which is the minimum investment grade. It cited the country’s improving ability to service maturing obligations to foreign creditors and bond holders.

Besides the DBS ratio, the country’s growing gross international reserves (GIR), the government’s declining debt burden and a stable banking sector were among the considerations that substantiate claims that the country’s ability to service debts has improved over the years.

The country’s GIR, which is the total reserves of foreign exchange, mow stand at $84 billion, or more than the country’s foreign debts of $60 billion.

The government’s debt burden—the proportion of its outstanding liabilities to the  gross domestic product—had shrunk from more than  70 percent in the early 2000s to only about 50 percent.

The country’s banking sector remains strong, the BSP said, with the industry’s total resources continuously growing over the years.

“The Philippine banking system remained resilient in 2012 despite the challenging global economic environment that persisted throughout the year,” the BSP said.

The Philippines became one of the fastest growing economies in 2012, with a GDP growth of 6.6 percent year on year. The growth rate beat the government’s official target of 5 to 6 percent.

The faster-than-target growth last year was realized despite the weakness of the global economy, which was dragged by economic problems in the United States and the Euro zone.

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