Foreign loan prepayments up 110% to $2.34B

Prepayments of foreign loans more than doubled during the first nine months of 2015 to $2.34 billion, Bangko Sentral ng Pilipinas (BSP) data showed.

The end-September amount of total prepayments on medium- and long-term foreign loans exceeded by 110 percent the $1.11 billion recorded during the first nine months of 2014.

As of end-September last year, the government’s prepayments of public external loans reached $1.47 billion, up 54 percent from $953.7 million a year ago.

As for private foreign loans, prepayments amounted to $875.2 million, 448-percent higher than the $159.7 million in 2014.

The latest BSP data showed that the foreign debt stock inched up by 0.8 percent quarter-on-quarter to $75.6 billion as of end-September even as investors had let go of Philippine IOUs amid market uncertainty prior to the US Federal Reserve’s rate increase last December.

“The increase in the debt level was attributed to net availments of $960 million, mainly by the private sector, consisting of bank borrowings (intercompany accounts as well as loans for relending to fund various economic activities, among others); and adjustments to reflect late reporting/corrections to previous periods’ transactions ($419 million),” the BSP had explained.

During the third quarter, “the upward impact of these developments on debt stock was partially offset by the transfer of Philippine debt paper from non-residents to residents ($803 million) amid concerns on the [then] forthcoming interest rate hike in the United States,” the BSP noted.

Compared with a year ago, foreign debt was down 1.9 percent from $77.1 billion at the end of the first nine months of 2014.

The BSP attributed the year-on-year decline to “higher investments by residents in Philippine debt papers ($2.4 billion); and negative foreign exchange revaluation adjustments ($1.4 billion) as the US dollar strengthened with the gradual recovery of the US economy.”

But as of end-September last year, net availments worth $1.9 billion on top of $403 million in adjustments from previous audit periods were added to the external debt stock.

According to the BSP, “key external debt indicators were observed to have remained at comfortable levels in the third quarter of 2015.”

The gross international reserves (GIR) worth $80.55 billion as of end-September were enough to cover 5.5 times the short-term debt based on original maturity.

The debt service ratio, or the amount spent on payments relative to the money the country makes from the exports of goods and services, improved to 5.6 percent in September from 6.4 percent a year ago and 6 percent last June “due to a larger decline in payments.”

The external debt remained heavily biased toward medium- to long-term accounts maturing after more than a year, which at end-September amounted $61.1 billion to account for 80.8 percent of the total. “Thus, foreign exchange requirements for debt payments are well spread out and, therefore, more manageable,” the BSP had said.

End-September public sector external debt stood at $37.9 billion (or 50.1 percent of the total stock), down from $38.6 billion a quarter ago, mainly due to an “increase in residents’ investments in Philippine debt papers ($738 million).”

The private sector debt was $37.7 billion as of end-September, up from $36.4 billion at the end of the first half, on the back of “net availments of $1.1 billion attributed mainly to banks.”

Almost a third or 32.4 percent of the end-September outstanding external debt was made up of obligations to foreign banks and other financial institutions, followed by official sources such as bilateral and multilateral creditors (30.8 percent), bonds and notes held by foreign investors (30 percent) and debt to foreign exporters and suppliers (6.8 percent).

The bulk of the foreign debt stock remained denominated in US dollar (64.3 percent) and Japanese yen (12.2 percent). US dollar-denominated multi-currency loans from the Asian Development Bank and the World Bank comprised 11.6 percent of the total, while the balance of 11.9 percent pertained to 18 other currencies, including the Philippine peso (7.2 percent).

The level of external debt that the country holds serves as an indicator of the economy’s vulnerability to financial market spikes. Having too much external debt could cripple an economy if its currency depreciates sharply to make foreign debt payments more expensive.