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Foreign debt hits highest level in nearly 10 years

OUTSTANDING external debt at the end of June was at its highest level since at least 2011, according to the Bangko Sentral ng Pilipinas (BSP), as the government’s pandemic expenses continue to mount while the peso weakens.

BSP data released late Friday indicated a rise in external debt of 15.7% year on year to $101.2 billion. It was 4.3% higher from the end of March.

The BSP debt level was at its highest since at least the end of 2011, according to the banks data.

The end-June level brought the ratio of external debt to gross domestic product to 26.5%, easing from the 26.6% posted at the end of March.

External debt includes all types of borrowing by residents from non-residents.

The BSP said the government continues to raise funds throughout the pandemic, issuing euro and samurai bonds worth $3 billion. It added that it took on an additional $1.3 billion from multilateral and bilateral creditors during the period.

The year-on-year increase in debt levels was attributed to net availments of $14.4 billion mostly by the National Government and private non-banks, as well as a foreign exchange revaluation of $205 million due to the weaker peso.

The external debt reflects attempts “to sustain spending that will stimulate the economy,” Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez said.

“Added to this is the continued depreciation of the peso against the dollar which naturally increased the value of our external debt,” Mr. Lopez said in a Viber message.

The peso has been trading within the P49 to P50 range in recent weeks. It closed at P48.80 to the dollar on June 30, weakening by 77.7 centavos or 1.61% from its P48.023 finish on Dec. 29, 2020.

The debt-service ratio, or principal and interest payments as a fraction of export receipts and primary income, rose to 9.4% from 8.4% a year earlier.

In the June quarter, public-sector external debt was $59.9 billion, up 5.45% from a quarter earlier. Some $54.3 billion consisted of National Government borrowing, while the remaining $5.7 billion represented debt taken on by government-owned and -controlled corporations, government financial institutions and the BSP.

Private-sector debt grew 2.5% quarter on quarter to $41.3 billion at the end of June. The increase was due to prior periods’ adjustments of $954 million by private non-banks and net availments of $123 million, the BSP said.

Major creditor countries were Japan ($15.2 billion), the Netherlands ($3.3 billion); and US ($3.3 billion). The BSP said the mix of creditor continues to be suitably diversified. 

The government is targeting an 85:15 financing mix this year, in favor of domestic borrowing. Before the pandemic, the applicable ratio was 75:25.

Rizal Commercial Banking Corp. said there is room to incur more foreign debt if needed as the government has managed the foreign exchange risk.

“There is still leeway to increase the country’s foreign debt after years of being conservative to finance the budget deficit especially for various COVID-19 (coronavirus disease 2019) programs, including vaccines and booster shots in the coming months/years,” Michael L. Ricafort, the bank’s chief economist, said in a Viber message. — Luz Wendy T. Noble

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