External debt at record $111.268 billion in 2022

OUTSTANDING external debt hit a record $111.268 billion, the central bank said, equivalent to 27.5% of gross domestic product (GDP), exceeding the year-earlier level of 27%.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) late Friday indicated that external debt at the end of 2022 rose 4.5% from a year earlier.

“Year on year, the country’s debt stock increased by $4.8 billion. This was due to net availments of $8.4 billion (largely by the National Government) and prior periods’ adjustments of $1.6 billion,” the BSP said in a statement.  

The rise in external borrowing was partially offset by the negative foreign exchange revaluation and the increase in residents’ investment in offshore debt paper, the BSP added.

The higher external debt was partly due to the diversification of the borrowing mix amid rising interest rates and elevated global inflation globally, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Monetary Board started to increased borrowing costs in May, raising the key policy rate by a total of 400 basis points to 6% in order to curb soaring inflation.

Headline inflation eased for the first time in six months, slowing to 8.6% in February from the 14-year high 8.7% in January. It was the 11^th straight month that inflation exceeded the BSP’s 2-4% target.

Despite the increase in the external debt-to-GDP ratio, this is still one of the lowest in the region, Mr. Ricafort said.

The debt-service ratio (DSR) fell to 6.3% in 2022 from 7.5% in 2021.

The DSR is a gauge of the adequacy of foreign exchange earnings for meeting its maturing debt obligations.

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

In the fourth quarter, external debt rose by $3.4 billion or 3.1% from the $107.9 billion posted at the end of September.

The growth in the debt stock in the fourth quarter was mainly driven by net availments of $1.8 billion, with the National Government issuing bonds, while banks sought external financing of $765 million to support lending activity and to service maturing obligations, the BSP said.

The government raised $2 billion (P118 billion) from its first dollar bond issue in October, the Bureau of the Treasury said.

Borrowing by the public sector grew 4% from a quarter earlier to $67.4 billion at the end of December. 

Some $59.8 billion of public-sector obligations consisted of borrowing by the National Government, while the remaining $7.6 billion were loans incurred by government-owned and -controlled corporations, government financial institutions and the BSP. 

Private-sector debt rose 1.9% from a quarter earlier to $43.9 billion at the end of December.

Japan ($14.7 billion), the US ($3.5 billion), and the United Kingdom ($3.2 billion) were the Philippines’ top creditor countries last year.

Loans from multilateral and bilateral sources accounted for 37.9% of all external borrowing.

Other sources were bonds (33.1%) and foreign banks and other financial institutions (22.9%), while the remainder (6.1%) was owed to suppliers and foreign exporters.

According to Mr. Ricafort, the appreciation of the peso to P55.755 against the dollar at the end of 2022 from its record-low close of P59 in October may have encouraged the increase in foreign borrowing.

Moving forward, the government and private sector should continue to borrow more from local sources in order to mitigate foreign exchange risk, he added.

For this year, the government set a budget deficit cap of P1.47 trillion which is equivalent to 6.1% of GDP. — Keisha B. Ta-asan