Foreign loans of gov’t, banks raised PH debt in 2018

The Philippines’ outstanding external debt rose slightly at the end of 2018 as private sector financial institutions raised fresh funds from foreign lenders to comply with monetary regulators’ higher capitalization requirements, the central bank said.

In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said total foreign obligations of the country stood at $79 billion at the end of last year, up by $2.5 billion or 3.3 percent from the end-September 2018 level of $76.4 billion.

“The growth in the debt level during the quarter was due largely to net availments of $1.6 billion as private banks borrowed offshore to fund purchases of high-quality liquid assets in preparation for the increase in the liquidity coverage ratio threshold as part of the Basel 3 reform package issued by the Basel Committee on Banking Supervision, and Republic of the Philippines bills, among others,” he said.

Positive foreign exchange revaluation adjustments amounting to $1 billion further contributed to the increase in the debt stock as the Philippine peso appreciated against the US dollar during the reference period due mainly to improving domestic inflation data and strong remittance inflow.

The rise in the debt stock was partially offset by $139-million increase in residents’ investments in Philippine debt papers issued offshore.

Year-on-year, the debt stock grew by 8 percent from the end-2017 level of $73.1 billion due largely to net availments by both public ($3.5 billion) and private sectors ($3.2 billion).

Specifically, this is attributed to the national government’s increased financing for its infrastructure development and social spending programs, private banks’ preparation for the increase in the liquidity coverage ratio threshold under the Basel 3 liquidity rule and to source funding for purchases of government bills, while other private firms decided to increase working capital, expand funding base and extend term liabilities.

Prior periods’ adjustments ($594 million) further increased the debt levels.

However, the increase in resident holdings of Philippine debt papers issued offshore ($1.2 billion) and negative foreign exchange revaluation adjustments ($125 million) partially tempered the sharp increase in the debt stock during the year.

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

As of year-end, the maturity profile of the country’s external debt remained predominantly medium- to long-term in nature (i.e., those with original maturities longer than one year), with share to total at 79.7 percent ($62.9 billion).

Short term accounts, or those with original maturities of up to one year, on the other hand, comprised the 20.3 percent balance of debt stock and consisted of bank liabilities, trade credits and others.