Foreign debt drops as weak peso favors domestic fund raising

By Melissa Luz T. Lopez,
Senior Reporter

OUTSTANDING foreign debt dropped further in the nine months to September as the government and companies were net payers of debt, the Bangko Sentral ng Pilipinas (BSP) said, driving the share of foreign debt share to less than a quarter of the economy.

External debt totaled $72.368 billion during the first nine months, down 5.6% from a year earlier, according to latest central bank data. The total was also lower than the $72.493 billion balance at the end of the six months to June.

The debt stock combines all foreign currency-denominated borrowings held by Filipinos, Philippine companies, and the national government from foreigners.

The BSP said the “substantial” slide in unsettled debt came as the government and private companies paid down debt worth $2.9 billion. Exchange rate revaluations worth $1.3 billion also played a role in the lower debt burden, as well as increased investments by Filipinos in debt paper issued overseas.

“The peso’s depreciation during the period may have encouraged a shift in borrower preference from foreign to domestic financing to minimize exposure to exchange rate volatility,” the central bank said in a statement sent over the weekend.

The peso traded at 11-year-lows this year to around the P51 level against the dollar, which effectively made foreign borrowing more costly due to exchange rate fluctuations.

Around 61.5% of the outstanding foreign loans are expressed in dollars, while yen-denominated debt accounted for 13%.

In the third quarter, net repayments totaled $805 million, the bulk of which were settled by Philippine companies, the BSP said.

The lower debt stock kept outstanding debt at “comfortable” levels as of the end of September, accounting for 23.4% of gross domestic product (GDP). This is lower than the 25.4% share during the same period in 2016.

Philippine GDP grew by a faster-than-expected 6.9% in the three months to September, which brought growth in the nine months to 6.7%.

Buffers are considered sufficient in the event of a funding crisis, with $80.962 billion in gross international reserves equivalent to 5.7 times the Philippines’ short-term liabilities.

Loans due in less than a year account for less than a fifth of the total debt stock, composed of bank dues and trade credits worth $14.218 billion. Meanwhile, the bulk of outstanding debt came with medium to long-term maturities, with such obligations deemed “manageable” as terms average at 17.4 years.

Public-sector debt accounted for half the total loans at $37.2 billion, carrying an average maturity of 23.1 years. On the other hand, private-sector borrowing hit $35.1 billion and average eight years’ duration.

Credit obtained from multilateral lenders accounted for a third of the total debt stock at $24 billion, while loans from foreign banks hit $22.3 billion. Notes issued to foreigners hit $20.9 billion, and $5.1 billion was owed to foreign suppliers.

The Philippines borrows from both domestic and external sources to help fund its budget deficit and support a growing economy, particularly to support the ambitious P8.44-trillion infrastructure spending plan.