PH foreign debt vs GDP eased in Q2 to 26.8%

Photo courtesy of Bangko Sentral ng Pilipinas Facebook Page

The Philippines’ outstanding foreign debt, reckoned in relation to the size of the domestic economy, decreased in the second quarter to 26.8 percent from 27.5 percent in the first quarter as the Russian invasion of Ukraine sent ripples across the global economy.

Data from the Bangko Sentral ng Pilipinas (BSP) show that external debt, which refers to all types of borrowings by Philippine residents from nonresidents, was pegged at $107.7 billion as of end-June 2022, down by 2 percent or $2.1 billion from the $109.8 billion at the end of March.

“The ratio [to gross domestic product (GDP)] remains one of the lowest as compared to other Asean (Association of Southeast Asian Nations) member-countries,” the BSP said in a statement.

“The low EDT to GDP ratio, a solvency indicator, indicates the country’s sustained strong position to service foreign borrowings in the medium to long-term,” it added.

Also, the debt service ratio improved to 5 percent at the end of June from 9.5 percent a year earlier as repayment of obligations was lower while dollar earnings were higher.

This ratio relates principal and interest payments to exports of goods and receipts from services and primary income. It is a measure of adequacy of the country’s foreign exchange earnings to meet maturing obligations.

The BSP said the decrease in the debt level during the second quarter of 2022 was mainly due to a reduction of $2 billion resulting from foreign exchange revaluation as the US dollar strengthened against other currencies amid the Russia-Ukraine conflict.

Another major reason was the United States Federal Reserve’s recent policy actions to raise interest rates to curb US inflation.

Also a cause of reduction was $613 million worth of Philippine debt paper that were issued abroad were transferred to locals while repayments exceeded new obligations by $86 million.

At end-June, public-sector external debt decreased by 2.6 percent to $65.7 billion from $67.4 billion at end-March.

Private-sector debt decreased slightly from $42.4 billion to $42 billion but the share to total increased from 38.6 percent to 39 percent.

The biggest single-country source of debt were Japan ($13.8 billion), the United Kingdom ($3.6 billion) and The Netherlands (US$2.8 billion).

The country’s debt stock remained largely denominated in US dollar (56.2 percent) and Japanese yen (9 percent).

—Ronnel W. Domingo INQ