External debt of the Philippines

The external debt is the amount of debt a country owes to foreign or international creditors. The debtors can be the government, corporations or citizens of that country. The estimated Philippines foreign debt under the Aquino administration in early 2016 was US$77,319,196,000.

The public debt is the total amount of debt a central government or country owes. It is also known as national debt. The debtors can be the government, corporations or citizens of that country. The estimated Philippines public debt under the Aquino administration in 2016 was $ 972,678.

Public debt per person: $1,515.28
Population: 109,805,464
Public debt as % of GDP: 45.8%
Total annual debt change: 8.4%

Debt process
Developing countries use external borrowing as a mechanism to address the gap between domestic savings and desired investment and the export-import gap.

In practice, debt management involves coordinating several major aspects of economic decision-making that have a bearing on loan contracting, utilization and the debt servicing needs and capabilities.

Institutional creditors
A creditor is a party (e.g. person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed.

International Monetary Fund (IMF)
Since its establishment in 1947, the IMF has been the primary institution responsible for the maintenance of a smoothly operating international monetary system.

According to the IMF, the lending process should follow the following procedures: Upon request by a member country, IMF resources are usually made available under a lending “arrangement”, which may, depending on the lending instrument used, stipulate specific economic policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic policy program underlying an arrangement is formulated by the country in consultation with the IMF and is in most cases presented to the Fund’s Executive Board in a “letter of intent” and is further detailed in the annexed “memorandum of understanding”. Once an arrangement is approved by the board, IMF resources are usually released in phased installments as the program is implemented. Some arrangements provide strong-performing countries with a one-time up-front access to IMF resources and thus not subject to policy understandings.

International Bank for Reconstruction and Development (IBRD)
The International Bank for Reconstruction and Development was created in 1944 to help Europe rebuild after World War II. Today, IBRD provides loans and other assistance primarily to middle income countries. IBRD is the original World Bank institution. It works closely with the rest of the World Bank Group to help developing countries reduce poverty, promote economic growth, and build prosperity. Unlike commercial lending, IBRD’s financing not only supplies borrowing countries with needed financing, but also serves as a vehicle for global knowledge transfer and technical assistance.

The bank procedures, according to the World Bank operations manual, follow the cycle: identification, preparation, appraisal, approval, implementation, and completion. The documentation requirements and decision points differ depending on whether a bank loan or a bank guarantee is proposed, and on project risk and special considerations. Additional financing and restructurings of investment project financing during implementation also have differing documentation requirements and decision points as set out by the manual.

Debt indicators
Public debt
Due to the large amount of debt that the National Government (NG) has incurred, the Bureau of Treasury publishes data of the allocation and grouping by categories regularly. Divided generally into two categories, these are

National Government Debt, which includes both outstanding debt and guaranteed debt of domestic and external origin; and
National Government Debt Service, which includes both principal payments and interest payments of debt paid domestically and externally.
Under each category, other types of data are also included. For domestic debt, these data are as follows:

By maturity (short-term, medium-term, long-term)
By type of borrowing (Treasury Bills, Treasury Bonds/Notes, Loans, others)
By type of liability (Direct Liabilities, Assumed Liabilities)
For external debt, these data are as follows:

By maturity (medium-term, long-term)
By creditor type (multilateral, bilateral, commercial, foreign debt securities)
By type of securities (Loans, US Dollar bonds/notes, Eurobonds, Yen bonds, Peso denominated bonds)
By type of currency (US dollar, Japanese Yen, Euro, French Franc, Deutsche Mark, PhP, other currencies)
By type of Liabilities (Direct Liabilities such as Loans and foreign debt securities, Assumed Liabilities)

Balance of payments
The balance of payments (BOP) is included within the Bangko Sentral ng Pilipinas (BSP) annual report which shows the difference of the total value of payments into (credit) and out of (debit) the country. Also known as the “balance of international payments”, the yearly published BOP contains all transactions between the residents and non-residents, including the trade of goods and services, income, investment, debt services and financial instruments. Having recorded the monetary credit and debit, the total asset and liabilities should zero out. But, in practice, the BOP shows the deficit or surplus and where it is coming from.

Since 1999, the Philippines fluctuates between deficit and surplus. What is most ideal[dubious – discuss] is a high surplus since this indicates more money coming into the country. In 2008, despite the global financial crisis, the country still received a surplus of US$89 million. This was followed by a growth of surplus in 2009 (US$5.3 billion) and 2010 (US$14.4 billion). In 2014, the country experienced its first deficit in a number of years, with a US$2.9 billion deficit.

External debt ratios
Debt-to-GDP ratio
The Debt-to-GDP ratio is the proportion of a country’s federal debt in relation to its total output or GDP. According to the Bangko Sentral ng Pilipinas (BSP), the ratio of what the Philippines owes from foreign creditors (external debt) to what it has been producing (GDP) has gone through a significant growth from 61.6% in 1999 to 68.2% in 2001. The ratio fluctuated until 2004 when it started a steady decline up to 2008. It rose again to 38.4% in 2009, but eventually fell down to 36.9% in 2010. Up until 2015, the trend was declining, with a 27.3% ratio at the end of 2014. Figures have generally been fluctuating (in terms of public and private external debt). Governments basically aim for low debt-to-GDP ratios because such is an indicator that the economy is producing high enough output to pay off its borrowings.

Debt-to-revenue ratio
The debt-to-revenue, according to the National Tax Research Center (NTRC), is an important calculation in evaluating the government’s ability to manage its debt. It measures the percentage of total revenue that is allocated to debt principal and interest payments. With the constant increase in the debt to revenue ratio, it becomes more difficult for the government to handle its national debt.

From almost a steady ratio of 420% in 2000–2001, the country’s debt-to-revenue ratio went down to 364% and 354% in 2011 and 2012, respectively. However, ratio then started to soar and reached as high as 539% in 2004. Between 2005 and 2007, the ratio slipped to as low as 327% then rose again to 391% in 2010.

Debt service ratio
Republic Act 6142 of 1970 defined the debt service ratio as the proportion of the Philippines’ principal and interest payments on medium- and long-term debt to total external receipts or export earnings. For the past 15 years, the Philippines’ debt service burden (DSB) to exports on goods and receipts from services and income noticeably fell by more than a half, from 14.6% in 1999 to 6.2% in 2014. From 2001 to 2009, the figures have been fluctuating. However, the ratios from 2009 until 2014 maintained a trend of decline. This is preferred since low debt service ratio characterizes better international finances.

Assessment of government performance on external debt

Ferdinand Marcos (Dec 1965 – Feb 1986)
During 1966–1969, then president Marcos borrowed a great amount of money to finance his domestic expansion and reforms. This expansion in the government budget led to increases in the current account deficit and crisis in the balance of payments (BOP). According to the Political Economy of Growth and Impoverishment in the Marcos Era, the Philippines’ foreign debt rose from $360 million in 1962 to $26.2 billion by the end of 1985. During the early 1970s, the government aimed at reviving growth and establishing an economic stabilization plan as well as a standby credit arrangement with the International Monetary Fund (IMF).

Under Republic Act 6142 of 1970, all external borrowing by the public and the private sector, with the exception of commercial bank sector, must be approved by the Monetary Board. The Management of External Debts and Investment Accounts Department (MEDIAD) within the BSP screened application for all external borrowings and maintained statistics on the country’s external debt; this then was a limitation on debt service and on total external indebtedness. The Foreign Currency Deposit System (FCDS), on the other hand, was in charge of permitting the external borrowing of banking sector—both domestic and foreign owned.

When Ferdinand Marcos became president in 1965, he continued Macapagal’s economic liberalization policies, in turn causing debt to rise from US$277.7 million to US$840.2 million by the end of his term. On September 21, 1972, Marcos declared martial law, and in the next five years real GNP grew at an average of 7% per year. The next few years were also characterized by strong economic performance with the rise of exports and booming of investment, alongside the rise of capital flight and crony capitalism. The end of the 1970s was of high levels of foreign debt and external debt from the public sector. With the second oil price shock during the 1980s, interest rates rose and the government implemented countercyclical policy to increase public investment to maintain domestic incomes.

Corazon Aquino (February 1986 – June 1992)
Corazon “Cory” Aquino started her administration with a total debt of US$60.2 billion. Domestic debt was US$32.06 billion, while external debt totaled around US$28.2 billion. The external debt problem was inherited from the Marcos regime. Aquino had the choice to repudiate the debts acquired by the Marcos regime due to their fraudulent nature. The NEDA secretary believed that, in order to restore growth, the country should not repay the debt. Creditors did not give much consideration to the country’s situation and initially refused any renegotiation. On the other hand, Jaime Ongpin, the finance secretary, and José B. Fernández, Jr., Bangko Sentral ng Pilipinas governor, together with World Bank representatives and various countries, were against Philippines repudiating its debt. The consequence of not honoring the debt, according to them, was loss of financial aid/support from foreign countries which the Philippines needed to bring back the economy. Jaime Ongpin also threatened to resign from his position if Cory decided for repudiation. In the end, Cory decided to honor the debt. Later, USA designed a “Marshall plan” to help the country, an initiative that would ease Congress constraints on foreign aid programs and allow the private sector to extend more generous assistance; this proposal would expand private sector investment, enhance trade opportunities, and seek solutions for Philippines’ external debt. Furthermore, P4 billion of foreign debt (inclusive of interest) was paid off in the span of 6 years. To finance this, however, the country borrowed a total of P9 billion pesos, bringing the total external debt from $28.2 billion to $33.2 billion for the duration of the Aquino administration.

Fidel V. Ramos (June 1992 – June 1998)
The 12th president of the Philippines, President Fidel Ramos, was able to uplift the economy of the country through focusing on “people empowerment” and “global competitiveness.” During his time, the Philippines was considered as one of the “Tiger Cub Economies” in Asia with its continuous growth and prosperity. An example of the prosperity and growth that took place during the Ramos administration was the decrease in inflation rate, dropping from 20% to 10% even reaching as low as around 5%.

Fidel V. Ramos’s administration began with a total debt of $77.6 billion. 57.2% of which was domestic debt ($44.4 billion) while 42.8% was from foreign debt ($33.2 billion). In the start of Ramos regime, he envisioned the Philippines to be a part of Asia’s tiger economies. True to his word, the Philippines experienced economic growth. In 1996, the GDP grew at a rate of 7.2%. Inflation was also reduced from 9.7% (Corazon Aquino’s regime) to 7.3%. However, in the 1997 Asian currency crisis, the Philippines’ economy took a huge blow. This may have come from the neglect of the agriculture and manufacturing industry. The peso depreciated from (1992) P27 to (1998) P41 to the dollar.

Joseph Ejercito Estrada (June 1998 – Jan 2001)
The short-lived Estrada administration was plagued with political and economic problems. Domestically, the conflict with the separatist group Moro-Islamic Liberation Front (MILF) in Mindanao, rampant kleptocracy and two corruption scandals led to a decline in investor confidence from within and abroad. Internationally, the country was also greatly affected by the world oil price hike and the tightened monetary policy of the United States Federal Reserve Board.

Under the Estrada regime, the Philippines accumulated debt amounting to P2.1 trillion in 1999. Domestic debt amounted to P 986.7 billion while foreign debt at US$52.2 billion. Even though the Philippines was at a disadvantage, the GDP growth rate was 3.2 percent from a −0.5 percent low in 1998. In addition, domestic investment increased from 18.8% of GDP in 1999 to 21.1% of GDP in 2000. Faced with high foreign debt right after he assumed office, President Estrada proposed the employment of contractionary policies to cut back government expenditures in strict compliance to his proposed budget during his first State of the Nation Address (SONA). The austerity measures were never followed. Rampant government overspending resulted in a Php 136.1 billion deficit of cash operations. By the end of his truncated term in 2000, total external debt increased from US$51.157 billion in 1999 to US$51.358 billion. Also, the weakening of the Peso against the US Dollar (average of Php 44.19/US$1; record average low of Php 51.68/US$1 on October 31, 2000) resulted in the rise of US interest rates and greatly affected the borrowing of both the private and public sectors.

Gloria Macapagal-Arroyo (Jan 2001 – June 2010)
Under the Arroyo administration, total outstanding debt only increased by an average of 0.47% per year. This is relatively low compared to other administrations due to good tax reform programs and high growth levels the country sustained during this administration. The country was able to reduce its total outstanding debt in 6 out of the 10 years. However, during her last year, total debt increased by 9.09%. During Arroyo’s administration, total debt from the Philippine Charity Sweepstakes Office (PSCO) increased by around P4 billion. Arroyo allegedly broke the rule regarding the mandated policy of the PSCO for its expenses. Some of these debts were unaccounted for and thus was alleged to be the kickbacks of top officials. It was also mentioned in an article that people were worse off during the end of the Arroyo administration than when she first sat as president. Unemployment increased, household real income shrank, poverty rose, many were forced to work outside the country.

The foreign debt of the country reached its peak in 2003 with an outstanding US$57.6 billion, which is more than the combined borrowings of the last two governments. According to the Freedom from Debt Coalition (FDC) In a span of 14 years, the Aquino, Ramos, and Estrada administrations contracted a total of Php1.51 trillion in debts, Php2.03 trillion less than what Arroyo has borrowed in her first six years in office. Under Arroyo, the FDC estimates that based on 2007 interest and principal payments, taxpayers carry a debt servicing burden of Php1.2 million every minute. Today, the FDC adds, every Filipino man, woman, and child owes creditors Php42,819.42. This eventually led to a state of fiscal crisis due to the huge amount of the deficit, as admitted by President Arroyo in 2004. As a response to this crisis, the option of an automatic appropriation policy that would allocate funds for debt service payments was questioned.

Appropriation policy means that a portion of government budget for social services is cut to accommodate the payment of the external debt. From 39% in 2001 to 68% in 2004 of the national budget was allotted to interest and principal payments of debt. The downside however of this policy is that it has greatly compromised the education, health and infrastructure of the country.

The government implemented new tax measures to increase the government budget, thus lessening the budget deficit. This included increased excise and corporate taxes, and the most controversial being the increase in value-added tax.

According to former finance secretary Margarito Teves, what the Aquino administration calls the Arroyo administration as “lost decade” is not consistent with what data shows. During Arroyo’s administration the Department of Finance had initiated several positive reforms that are benefited and still benefiting the country. The low rise in debt during the Arroyo administration also resulted in credit outlook upgrades from negative to stable, and then positive shortly after her term. This resiliency of external debt to shocks was credited to Arroyo’s strong focus on tax reforms. In another news article, according to House Minority Leader Danilo Suarez, the Philippine’s capacity to lend $1 billion to the International Monetary Fund in 2012 should not be credited to Aquino’s administration, but rather to Arroyo’s administration. This is due to the unprecedented growth levels the country had during Arroyo’s administration.

Following the fiscal crisis, the external sector policy for 2005–2006 of the Bangko Sentral ng Pilipinas was focused on the following: (a) to maintain appropriate levels of reserve deposits to ensure liquidity of the economy, (b) to retain market-determined exchange rate, with limited intervention during extreme cases, and (c) control foreign loans, particularly from the public sector. Moreover, less borrowings, improved pre-payment schemes, lower foreign exchange rate and increased government revenue led to a continuous decline of external debt until the last year of the Arroyo administration, with an outstanding external debt of US$64.738 billion in 2009.

Benigno “Noynoy” Aquino III (Jun 2010 – Jun 2016)
During the Aquino administration, debt service and the public debt stock have continued to rise. It paid Php634 billion in debt service between July 2010 and April 2011 which is Php8 billion more than in the equivalent previous period under the previous administration. These payments over its first ten months also already exceed payments for the whole year of 2007, 2008 and 2009 respectively (and of the first two years combined of the previous administration). Yet the national government debt stock has continued to rise from Php4,582 billion in end-June 2010 to Php4,706 billion in March 2011.

However, according to the Bangko Sentral ng Pilipinas, the Philippines became a creditor nation in 2010 when it joined the International Monetary Fund (IMF) Financial Transactions Plan (FTP) through which emerging market economies took part in international cooperation efforts to lessen the impact of the euro debt crisis on the rest of the global economy. Among the gains the Philippines got from joining the FTP was access to the New Arrangements to Borrow (NAB) facility, which the IMF established to help its members cope with serious international financial crises.

The government reported 4.9% growth in real gross domestic product (GDP) in the first quarter of 2011 which was markedly slower than the 8.4% rate in the first quarter of 2010. Consecutive quarters are not strictly comparable but it can still be noted that the first three quarters of the Aquino administration has seen progressively slower growth year-on-year – from 8.9% in the second quarter of 2010, 7.3% in the third quarter, and 6.1% in the fourth quarter, followed by the 4.9% in the first quarter of this year.

In addition to this, at the start of 2011 – and for the first time in the country’s independent history – gross international reserves eclipsed external debt. Foreign reserves increased by 20.5% last year to $75 billion, up from $63 billion at the end of 2010. The Philippines’ debt-to-GDP (gross domestic product) ratio is among the lowest in Asia at under 50%.

By June 2013, it was announced by BSP Governor Amando M. Tetangco, Jr that the country’s outstanding external debt registered by the BSP has declined by US$1.0 billion (or 1.8%) to US$58.0 billion from US$59.0 billion in March. According to him, this was largely a result of net loan repayments, mostly by the public sector, as well as negative foreign exchange revaluation adjustments as the US dollar strengthened, particularly against the Japanese Yen. This decrease supported the yearly trend with debt stock reflecting a reduction of US$3.2 billion (or 5.3%) from US$61.2 billion in June 2012.

The trend observed for the external debt-GDP-ratio was also the same for the said year, with the ratio down to 21.8% in the second quarter from 22.8% in March and 26.1% in June 2012. Generally, the country’s economy between 2012 and 2013 grew at an average rate of 7.0%.

Moreover, the country sustained its growth momentum in 2014 at a rate of 6.1%, as what the national government targeted to be 6.0–7.0% growth rate for 2014. By the end of March 2014, it was reported that the country’s outstanding external debt registered by BSP stood at US$58.3 billion. The debt-GDP-ratio for this year, from 22.8% in 2013, declined to 21.5%.

During the first nine months of 2014, the country’s BOP position recorded a US$3.4 billion deficit, a reversal from the US$3.8 billion surplus recorded in 2013. According to BSP, the deficit was attributed to the significant increase in net outflows in the financial account brought about by large net outflows in portfolio investments and in other investments.

Positive developments in the US economy and anticipations of interest rate adjustments by the US Fed have led to capital outflows in emerging markets like the Philippines. Meanwhile, the current account remained in surplus at US$6.8 billion supported by strong remittance flows and receipts from the BPO industries and the export sector. As of December 2014, the country’s gross international reserves (GIR) stood at US$79.8 billion.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced that the outstanding Philippine external debt stood at US$75.3 billion at end-March 2015, down by US$2.4 billion (or 3.0 percent) from the US$77.7 billion level at end-2014. This decline was due to the net repayments (US$2.0 billion) mainly by banks. Other factors that influenced the decline of the debt stock is from the negative foreign exchange (FX) revaluation (US$220 million) arising from the strengthening of the US Dollar against other currencies, and an increase in residents’ investments in Philippine debt papers (US$100 million).Governor Tetangco said, “Key external debt indicators were observed to have remained at very prudent levels in the first quarter of 2015.” Gross international reserves (GIR) of US$80.5 billion as of end-March 2015 represented 6.1 times cover for short-term (ST) debt under the original maturity concept compared to 4.9 times and 4.7 times as of end-December and March 2014.The Philippine’s external debt is mostly consist of medium- to long-term (MLT) accounts which represented 82.6 percent of total.

This implies that FX requirements for debt payments are well spread out and, thus, more manageable.The weighted average maturity for all MLT accounts stood at 17.0 years, with public sector borrowings having a longer average tenor of 22.2 years compared to 8.6 years for the private sector. ST external debt comprised the 17.4 percent balance of the debt stock, consisting largely of bank borrowings, intercompany accounts of foreign bank branches, trade credits, and deposits of non-residents.Public sector external debt stood at US$39.1 billion (or 52.0 percent of total debt stock), slightly lower than the US$39.3 billion level (50.7 percent) as of end-2014 due mainly to negative FX revaluation adjustments (US$209 million) as the US Dollar strengthened against most currencies.Private sector debt likewise declined to US$36.2 billion from US$38.3 billion a quarter ago due largely to the net repayments of bank liabilities (US$2.9 billion).

Foreign holders of Philippine bonds and notes continued to account for the largest share (33.5 percent) of total external debt, followed by official sources (multilateral and bilateral creditors – 30.4 percent), foreign banks and other financial institutions (28.9 percent), and foreign suppliers/exporters (7.2 percent).The country’s debt stock remained largely denominated in US Dollar (64.6 percent), and Japanese Yen (12.7 percent). US dollar-denominated multi-currency loans from the World Bank and Asian Development Bank comprised 10.4 percent of total, while the remaining 12.3 percent pertained to 17 other currencies.

Philippine debt sustainability
According to NTRC, the country’s debt sustainability assessment for 2012–2017 shows that investors have a positive outlook on the country’s economy.

It is said that a high debt level could be perceived as sustainable by investors if it is decreasing. The country’s projected debt sustainability from 2012 to 2017 depicts downward trends in debt-to-GDP and debt-to-revenue that lead to further improvement in market perceptions. The ratio indicates that for every PhP100 worth of goods and services the country produces in the economy between 2012 and 2017, the country must use around PhP42 to PhP55 for debt repayment.

However, it is still fundamental for the government to practice proper debt management to avoid payment defaults and/or debt service eating up much of the revenues of the government (debt overhang).

Risks of external debt to Philippine economy
According to Bangko Sentral ng Pilipinas:

Debt sustainability is a major issue, particularly for countries facing higher public debts, such as what most advanced economies are currently experiencing. These countries are vulnerable to rollover risks as maturing debt obligations could become more expensive to refinance considering that investors will demand significant premium to compensate for the greater risks that they will be assuming. The punitive action of the market through higher borrowing costs will make it more difficult for these countries to service their obligations, creating a vicious cycle of debt trap. This could be aggravated when governments planning to undertake unpopular measures that will increase revenues and/or reduce public expenditures face political backlash that render them not politically feasible.


External debt for selected years

Fiscal Year Total External Debt in

Million of US Dollars ($)

Total Debt Service in

Million of US Dollars ($)

External Debt to GDP Ratio


Debt Service Ratio


1999 51,157 6,583 61.6 14.6
2000 51,358 6,268 63.4 13.0
2001 52,047 6,536 68.2 15.7
2002 53,802 7,765 66.1 17.1
2003 57,567 7,951 68.6 16.9
2004 55,027 7,220 60.2 13.8
2005 61,555 7,499 59.7 16.2
2006 61,372 7,530 50.2 13.0
2007 66,508 6,993 44.5 10.7
2008 65,228 7,042 37.6 10.5
2009 64,738 6,880 38.4 11.0
2010 73,594 7,402 36.9 9.9
2011 75,569 7,793 33.7 9.9
2012 79,949 6,604 32.0 7.3
2013 78,489 7,535 28.9 8.2
2014 77,674 6,318 27.3 6.2
2015 77,474 45.9
2016 74,763 6,121 42.1
2017 73,098 5,839
2018 73,196

National government external debt and debt service for selected years

Fiscal year Total NG external debt

in million of pesos (PhP)

Total NG external debt service

in million of pesos (PhP)

2000 1 568 157 88 839
2001 1 609 844 107 809
2002 1 914 939 157 030
2003 2 337 231 175 103
2004 2 611 307 209 270
2005 2 262 105 235 107
2006 2 195 242 276 172
2007 1 930 536 172 832
2008 2 279 147 182 257
2009 2 461 213 213 052
2010 2 449 329 242 880
2011 2 493 616 251 679
2012 2 326 611 198 158
2013 2 287 109 218 705
2014 2 222 774 191 057

Balance of payments for selected years

Fiscal year Deficit or surplus Total amount of BOP

in US dollars ($)

1999 Surplus 3.8 Billion
2000 Deficit 513 Million
2001 Deficit 192 Million
2002 Surplus 663 Million
2003 Surplus 115 Million
2004 Deficit 280 Million
2005 Surplus 2.407 Billion
2006 Surplus 3.769 Billion
2007 Surplus 8.6 Billion
2008 Surplus 89 Million
2009 Surplus 5.3 billion
2010 Surplus 14.3 billion
2011 Surplus 11.4 billion
2012 Surplus 9.2 billion
2013 Surplus 5.1 billion
2014 Deficit 2.9 billion

Source from Wikipedia