by Lee C. Chipongian

The country’s outstanding external debt slipped to $74.8 billion at the end of 2016 or down by 3.48 percent or $2.7 billion from the previous year’s $77.5 billion, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

The BSP said the decline was due to the following: Net principal repayments by both the public and private sectors worth $3.4 billion; audit adjustments from past loans (negative $168 million) due to late reporting; and negative (or downward) foreign exchange revaluation adjustments of $36 million.

“However, the full downward impact of these factors on debt stock was partly offset by an increase in non-residents’ investments in Philippine debt papers issued offshore of $846 million,” the BSP explained.

In a statement, BSP Governor Amando M. Tetangco Jr. said external debt indicators “remained at comfortable levels” at the end of 2016 with external reserves amounting to $80.7 billion. This was adequate for a 5.6 times cover on short-term debt and indicates that the country’s foreign exchange earnings could meet foreign maturing debt.

As of end-December, 2016, the debt service ratio which is the principal and interest payments or debt service, increased to 6.9 percent “due largely to the increase in payments (from $5.6 billion in 2015 to $7.1 billion in 2016).”

“The external debt ratio (a solvency indicator), or total outstanding debt expressed as a percentage of annual aggregate output, continued to improve by year-end to 20.4 percent from 21.1 percent in the third quarter of 2016, and 21.9 percent as of end-2015,” said the BSP.

On a quarterly basis, the end-December external debt was also lower compared to end-September’s $76.6 billion or lower by 2.4 percent or $1.9 billion. A weakened Japanese yen vis-à-vis the US dollar was one of the factors for the decline.

The yen currency is one of the foreign currencies that make up the external debt stock and it accounted for 12 percent. About 65.1 percent of Philippine foreign debt are denominated in US dollar and the rest are in US dollar-denominated multi currency loans and other currencies.

The BSP said the downward foreign exchange revaluation adjustments of $1.8 billion was due to the US dollar gaining ground against third currencies, particularly the yen which resulted to a $1.4 billion decline in external debt.

Other factors were net principal repayments of $611 million which was made mostly by the government and previous periods’ audit adjustments which was a negative $73 million. A $591 million transfer of Philippine debt papers from residents to non-residents offset these factors and “had the effect of increasing outstanding external debt,” said the BSP.