MANILA, Philippines – The country’s external debt ratio, or foreign debt as percentage of the economy, improved in the first quarter of the year, the central bank said Friday, June 22.
The Bangko Sentral ng Pilipinas (BSP) reported that the external debt ratio stood at 27.4% in the first 3 months, down from 29.5% in the same period last year.
It said the ratio improved as the economy, measured by gross domestic product (GDP), grew faster than the absolute amount of debt.
The Philippines’ foreign debt rose 3.2% in the first quarter to $62.9 billion from $60.9 billion last year. The GDP rose faster, by a surprising 6.4%, thanks to a robust services sector.
“Notwithstanding the higher debt level,” the BSP said the external debt position “remained at very prudent and comfortable levels.”
The decline in the ratio indicates the country’s improving ability to pay its foreign obligations.
It is one of the major factors that international debt watchers such as Moody’s, Standard & Poor’s and Fitch Ratings, look at when rating the Philippines.
Moody’s rates the Philippines’ foreign and local currency bonds two notches below investment grade, the same as Standard & Poor’s rating.
Fitch rates the Philippines one notch below investment grade. Fitch recently decided to keep its rating for the country even after economic officials made a pitch for an upgrade. While the rating agency acknowledged the Aquino government’s good governance campaign and fiscal agenda, it said these would “take time to feed through to the sovereign credit profile.”
The Aquino administration wants to attain the Philippines’ first investment grade before its term ends in 2016.
An investment grade would be considered a vote of confidence in the administration. It would also translate to lower borrowing costs for the Philippines as investors are less likely to command higher interest rates on debts to compensate for the risk of default. – Rappler.com