The Philippines has closed the fourth quarter of 2023 with its external debt (EDT) at US$125.4 billion, marking an increase of US$6.6 billion (or 5.5 percent) from the end of September 2023.
Despite this rise, the nation’s EDT, when measured against its gross domestic product, has maintained prudent levels, standing at 28.7 percent—a slight uptick from the 28.1 percent recorded in the preceding quarter and up from 27.5 percent at the end of 2022.
In the context of global financial stability, a country’s external debt ratio is a pivotal indicator of its ability to manage and service its international financial obligations without compromising economic growth. This is particularly relevant for emerging economies that are often more vulnerable to external shocks.
Other critical indicators of external debt also exhibited stability. The gross international reserves (GIR) stood robust at US$103.8 billion by the year’s end, providing a cushion for short-term debts up to 6.1 times the amount based on the original maturity concept.
The debt service ratio (DSR), despite an increase to 10.2 percent from 6.3 percent in the previous year, remains within manageable limits. The rise in the DSR reflects higher principal and interest payments which were influenced by the increased interest rates during the year.
The uptick in external debt was primarily attributed to net availments of US$4.9 billion by the private and public sectors.
The private sector accounted for a considerable portion of this with a US$3.0 billion loan procured by a non-bank entity. These funds were earmarked for capital expenditures and meeting maturing obligations.
In contrast, the public sector drew on various funding sources, including a landmark US$1.0 billion Sukuk bond issuance, to support government initiatives.
The country’s debt stock showed a year-on-year rise of US$14.1 billion, or 12.7 percent, from the end-2022 level of US$111.3 billion. This increase was propelled by net availments, changes in the scope of external debt to include non-residents’ holdings of Philippine debt securities, and adjustments from prior years.
Examining the composition of the external debt, the majority, 86.4 percent, consisted of medium- and long-term obligations, indicating a preference for debt with longer maturities.
The average maturity for these debts has seen a slight decrease but remains substantial, especially for public sector borrowings which stand at an average of 19.6 years.
Short-term liabilities made up the remaining 13.6 percent and were mainly attributed to bank liabilities, trade credits, and other liabilities.
The public sector’s share of external debt grew by 5.6 percent to US$77.8 billion, while the private sector debt edged up to US$47.6 billion, a 5.4 percent increase from the last quarter.
This balanced growth underscores the concerted efforts of both sectors in their respective financing strategies.
Significantly, the Philippines’ external debt stock is mostly denominated in US dollars and Japanese yen, accounting for 75.3 percent and 9.0 percent respectively.
The country’s currency composition of debt showcases its diversified approach in managing external obligations, possibly mitigating the risks associated with currency fluctuations.
The major creditor countries, Japan, China, and the United Kingdom, continue to be significant partners in the Philippines’ financial strategies.
Loans from multilateral and bilateral sources constitute the largest share of external debt, highlighting the continued support and confidence of the international community in the Philippines’ fiscal management.
