External debt hits a record $106.428 billion in 2021

THE COUNTRY’S outstanding external debt reached a record high in 2021 as the government continued to ramp up borrowings amid the pandemic.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) on Friday night showed external debt as of end-2021 reached $106.428 billion.

It increased by 8.1% from the $98.488-billion level as of end-2020. It is also the biggest so far based on available BSP data which dates back to 1985.

“Year on year, the country’s debt stock rose by $7.9 billion brought about by net availments of $9.8 billion, mainly by the National Government and prior periods’ adjustments of $3.8 billion,” the BSP said in a statement.

The rise in external borrowings was partially offset by the increase in residents’ investment in offshore debt papers.

The external debt is equivalent to 27% of the Philippine gross domestic product (GDP). This is slightly lower than 27.2% debt-to-GDP ratio logged in 2020, which was the biggest in seven years or since the 27.6% in 2013.

“External debt-to-GDP ratio as of end-2021 eased amid the faster growth in GDP that led to a bigger base as the economy reopened further towards greater normalcy,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Philippine economy bounced back with a 5.6% growth in 2021 coming from the record 9.6% contraction in 2020.

Meanwhile, the debt-service ratio (DSR), which relates principal and interest payments to exports of goods and receipts from services and primary income, rose to 7.2% in 2021 from 6.7% in 2019 mainly due to higher payments.

The DSR is a gauge of adequacy of the country’s foreign exchange earnings in relation to meeting its maturing debt obligations.

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

Borrowings by the public sector slipped by 2% to $63.9 billion as of end-December from $65.2 billion as of end-September.

The bulk or $55.4 billion of public sector obligations were borrowings by the National Government, while the remaining $8.5 billion was made up of loans incurred by government-owned and -controlled corporations, government financial institutions and the BSP.

Meanwhile, private sector debt increased by 4.4% to $42.5 billion as of end-December from $40.7 billion as of end-September.

Japan ($14.6 billion), US ($3.8 billion), UK ($2.8 billion), and The Netherlands ($2.8 billion), were the top creditor countries last year.

Broken down, loans from multilateral and bilateral sources made up by 37% or the largest share of the external borrowings.

This was followed by borrowings in the form of bonds (34.7%) and obligations to foreign banks and other financial institutions (22.3%), while the rest (5.8%) were owed to other creditor types like suppliers and exporters.

Both the government and the private sector should gauge the risks that come from the weaker peso for decisions regarding external borrowings, Mr. Ricafort said.

“This would highlight the need for both the government and private sector to hedge foreign exchange risks for their respective borrowings, at the very least, to at least better manage risks inherent to foreign debt,” he said.

At its close of P52.335 per dollar on Friday, the peso has weakened by 2.6% from its P50.999 finish as of end-2021. As of end-2021, the peso weakened by 6.2% year on year.

For this year, the government set a budget deficit cap of P1.65 trillion which is equivalent to 7.7% of GDP.

National Treasurer Rosalia V. de Leon earlier said they expect 77% of debt will come from domestic borrowings. — Luz Wendy T. Noble