External liabilities in Q2 rose on PH loan binge

The Philippines owed the rest of the world more, by 19 percent year-on-year during the second quarter with P1 trillion this year against P873.6 billion last year, according to the Bangko Sentral ng Pilipinas (BSP).

This was among findings of the BSP’s Philippine Balance Sheet Approach Report, which assesses the country’s assets against liabilities, using the aggregate balance sheet of the various sectors of the domestic economy.

The BSP said the wider net external liability position was mainly driven by the expansion of the net external liability positions of the general government and nonfinancial corporations (NFCs).

Similarly, the net debtor position of the government at large broadened by 19.6 percent to P6.1 trillion from P5.1 trillion.

The regulator attributed this mainly to a double-digit growth in public-sector net financial liabilities against the rest of the world, other depository corporations (ODCs) and the BSP itself. ODCs are deposit-generating institutions other than the BSP, such as financial corporations like universal and commercial banks, thrift banks, rural banks, nonstock savings and loan associations and nonbanks with quasi-banking functions.

During the second quarter, government outstanding loans increased by 27.3 percent to P2.3 trillion from P1.8 trillion.

As for NFCs, their net debt piled up higher by 3.8 percent to P7.5 trillion from P7.2 trillion.

On the other hand, ODCs’ net creditor position widened by 18.9 percent to P2.1 trillion from P1.8 trillion amid growing claims on the BSP and the government.

Also, ODCs’ investments in debt securities surged 36.7 percent to P5.2 trillion from P3.8 trillion. They were predominantly issued by the national government, BSP and nonresidents.

During the second quarter, the BSP’s net creditor position narrowed by 2.3 percent to P590.1 billion from P603.8 billion. This was in the wake of a 23-percent drop in its net financial liabilities against ODCs.

Central bank advances

The BSP’s net claims on the government rose by 32.7 percent to P640.8 billion from P482.9 billion as the central bank increased its investments in government securities and extended provisional advances to the national government.

Provisional advances is a temporary arrangement between the BSP and the national government to provide the latter access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale of the borrowing need as well as the unpredictability of financial markets amid the pandemic.

Earlier this month, the Department of Finance (DOF) repaid the full amount of its outstanding P540-billion provisional advances to the BSP. This was done a month ahead of the maturity date, which falls on Jan. 12, 2022.

Also, Finance Secretary Carlos Dominguez III informed the BSP that the national government will request liquidity support of only P300 billion in 2022, considering an improved economic outlook.

The DOF intends to request the P300-billion provisional advances in January, with similar terms as the P540 billion loan—zero interest and three-month maturity with another three-month extension.

By law, funds granted under this short-term lending arrangement are not used for direct financing of government operations. Instead, they serve as a liquidity gap measure ahead of revenues.