(STAR) By Des Ferriols - The country’s foreign debt fell to $54.2 billion at the end of 2005, down 1.2 percent from $54.8 billion at the end of 2004, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

This was also a 2.3-percent reduction from the $55.5-billion foreign debt posted in September 2005, the BSP said.

"The decline in debt stock during the fourth quarter resulted from the net repayment of foreign loans and the downward foreign exchange revaluation adjustment on some major third currency-denominated obligations due to strengthening of the US dollar," BSP Governor Amando Tetangco Jr. said.

The country’s external debt ratio, or total outstanding external debt as a percentage of gross national product (GNP) was estimated at 51.5 percent as of December 2005, an improvement over the 59.5-percent level the year before.

"This positive development indicates an enhanced capacity of the country to pay maturing obligations on a sustained basis," Tetangco said.

The country’s debt service ratio also improved to 13.3 percent by the end of 2005 from 13.8 percent a year ago.

The debt service ratio is the percentage of total foreign principal and interest payments to total exports.

Keeping the debt service ratio well below the 20 percent international benchmark ratio shows the Philippines has more than enough foreign exchange earnings to service its maturing foreign debt obligations, the BSP said.

"It indicates that the country has sufficient foreign exhange earnings to service current maturities of its foreign obligations," Tetangco explained.

The BSP reported that the decline in debt stock during the fourth was due to the the country’s net repayment of foreign loans amounting to $832 million.

The BSP said there was also a downward foreign exchange revaluation adjustment on some major third currency-denominated obligations as the US dollar against these currencies, mainly the Japanese yen. This revaluation took out an estimated $711 million from the debt stock.

However, the revaluation and repayment was partly offset by the $252-million increase in the debt stock to reflect the decline in the amount of Philippine debt papers bought by local investors from abroad.

In terms of maturity, the BSP said the country’s debt profile remained comfortably extended with medium and long-term accounts accounting for 88 percent of the total debt stock.

These loans, with original tenors of more than one year, had a weighted average maturity of 17.4 years. Public sector borrowings had a longer average term of 19.8 years, compared to 10.4 years for the private sector.

The BSP said the country’s gross international reserves (GIR), which reached a peak of $20.6 billion as of end-February 2006, represented 3.2 times the level of short-term debt under the original maturity concept, and 1.8 times of short-term debt based on the remaining maturity concept.

Classified by borrower, the BSP said public sector accounts represented 67.4 percent of the total debt stock; the balance pertained to the private sector. The moderate decline in public sector share to total external debt observed during the past several quarters continued during the fourth quarter of 2005.

Meanwhile, the BSP said the diversified creditor profile of outstanding liabilities indicated the country’s continuing access to a wide investor base.

According to BSP records, official creditors (consisting of multilateral and bilateral institutions) accounted for 39.9 percent of total, followed by foreign holders of bonds and notes at 31.7 percent, and foreign banks and other financial institutions, 23.8 percent.

The BSP said the bulk of loan proceeds were used to fund various infrastructure and social services projects and relending activities of government financial institutions. Meanwhile, private sector borrowings were channeled mostly to transportation, communications and power generation projects

The Philippines is one of Asia’s most active debt issuers. Last year the government funded a budget deficit of P146.5 billion through foreign and domestic borrowings.

Chief News Editor: Sol Jose Vanzi

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