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Philippine Debt crisis
The document discusses the Philippine debt crisis, including definitions of external, internal, and national debt. It provides background on debt crises in general and risks of debt crises for countries. Specific data is presented on the Philippines' external debt, GDP, GDP growth, government debt as a percentage of GDP, budget deficit, exchange rate between the Philippine peso and US dollar, and how the government pays its external debt obligations. The document estimates that based on the 2015 budget, the Philippines faces an annual deficit of P439.03 billion for debt service payments that could potentially lead to a debt crisis if not addressed.
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Philippine Debt crisis
- 1. Philippine Debt Crisis Presentedby: Crysler D. Tumale
- 2. External Debt -Theportion of a country's debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made.
- 3. Internal debt isthe part of the total debt in a country that is owed to lenders within the country. A country occasionally needs to borrow from institutional and individual investors for budgetary purposes.
- 4. National Debt- Total outstandingborrowings of a central government comprising of internal (owing to national creditors) and external (owing to foreign creditors) debt incurred in financing its expenditure.
- 5. A debt crisisdeals with countries and their ability to repay borrowed funds. Therefore, it deals with national economies, international loans and national budgeting. The definitions of "debt crisis" have varied over time, with major institutions such as Standard and Poor's or the International Monetary Fund (IMF) offering their own views on the matter. The most basic definition that all agree on is that a debt crisis is when a national government cannot pay the debt it owes and seeks, as a result, some form of assistance.
- 6. Major Risks ofDebt Crisis 1. High external debts are believed to have harmful effects to the economy. 2. The reputation of a country is also at stake when external debt is looked at and may discourage investments to enter into the country. 3. The present foreign investors in the country would be expected to pull capital out of the country. 4. It would lead to a decline in the Peso, making the debt burden (which is largely denominated in dollars) more onerous.
- 8. External Debt inPhilippines decreased to 58.506 Billion USD in 2013 from 60.337 Billion USD in 2012. External Debt in Philippines averaged 42.42706 Billion USD from 1981 until 2013, reaching an all time high of 60.442 USD Million in 2011 and a record low of 20.893 Billion USD in 1981. External Debt in Philippines is reported by the Bangko Sentral Ng Pilipinas.
- 10. The Gross DomesticProduct (GDP) in Philippines was worth 272.02 billion US dollars in 2013. The GDP value of Philippines represents 0.44 percent of the world economy. GDP in Philippines averaged 60.12 USD Billion from 1960 until 2013, reaching an all time high of 272.02 USD Billion in 2013 and a record low of 4.40 USD Billion in 1962. GDP in Philippines is reported by the World Bank.
- 12. The Gross DomesticProduct (GDP) in Philippines expanded 5.30 percent in the third quarter of 2014 over the same quarter of the previous year. GDP Annual Growth Rate in Philippines averaged 5.02 Percent from 2001 until 2014, reaching an all time high of 8.90 Percent in the second quarter of 2010 and a record low of 0.50 Percent in the third quarter of 2009. GDP Annual Growth Rate in Philippines is reported by the Philippine National Statistical Coordination Board.
- 14. Philippines recorded aGovernment Debt to GDP of 49.20 percent of the country's Gross Domestic Product in 2013. Government Debt To GDP in Philippines averaged 58.35 Percent from 1990 until 2013, reaching an all time high of 74.90 Percent in 1993 and a record low of 49.20 Percent in 2013. Government Debt To GDP in Philippines is reported by the Bureau of the Treasury, Philippines.
- 15. Generally, Government debtas a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.
- 17. Philippines recorded aGovernment Budget deficit equal to 1.40 percent of the country's Gross Domestic Product in 2013. Government Budget in Philippines averaged - 2.17 Percent of GDP from 1988 until 2013, reaching an all time high of 1 Percent of GDP in 1994 and a record low of -5.30 Percent of GDP in 2002. Government Budget in Philippines is reported by the Department of Finance of the Philippine Republic.
- 18. Government Budget isan itemized accounting of the payments received by government (taxes and other fees) and the payments made by government (purchases and transfer payments). A budget deficit occurs when an government spends more money than it takes in. The opposite of a budget deficit is a budget surplus.
- 20. The US Dollarincreased to 44.75 Philippine Peso in January from 44.64 in December of 2014. The Philippine Peso averaged 46.98 from 1998 until 2015, reaching an all time high of 56.34 in October of 2004 and a record low of 37.84 in May of 1999.
- 21. The USDPHP spotexchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the PHP. While the USDPHP spot exchange rate is quoted and exchanged in the same day, the USDPHP forward rate is quoted today but for delivery and payment on a specific future date.
- 22. HOW DOES THEPHILIPPINE GOVERNMENT PAY ITS EXTERNAL DEBT? Debt Service- The cash that is required for a particular time period to cover the repayment of interest and principal on a debt. Debt service is often calculated on a yearly basis. Debt burden is the cost of servicing the public debt. Most of this debt burden is a really transfer from one generation to another.
- 23. Financing the 2015expenditure plan: Macroeconomic environment Fiscal program The Aquino administration commits to maintaining the budget deficit at 2% of GDP, which is equivalent to P283.7 billion. This will allow the administration to continue pursuing reforms to increase revenue collections without burdening the people with additional debt.
- 24. Budget Breakdown The Aquinoadministration has always prioritized toward the poor and marginalized. The 2015 budget reflects this thrust. The administration is also aiming to continually reduce the debt burden on our budget, by making government more efficient and our finances more stable.
- 25. Of the P2.606trillion expenditure program: Social services: 37.1% = P967.9 billion Economic services: 26.9% = P700.2 billion General public services: 16.2% = P423.1 billion Defense: 4.4% = P115.5 billion Debt burden: 15.3% = P399.4 billion
- 26. Borrowings The projected deficitfor 2015 is P283.7 billion. To cover this gap between disbursements and revenues, the administration will borrow P700.8 billion, reducing the country’s debt stock while also helping develop domestic capital markets. The goal is to raise 86.3% of the borrowing program (P605.1 billion) through the issuance of treasury bills and bonds to local investors. The remaining 13.7% (P95.7 billion) will be sourced externally through concessional loans from development partners and the issuance of dollar bonds in global capital markets.
- 27. Good News! The Philippinescontinues to pare down its foreign debt servicing to $1.538 billion as of this year or 37.32 percent less than the $2.454 billion in the same period last year, the Bangko Sentral ng Pilipinas (BSP) reported.
- 28. Estimated Calculation forDebt Burden for both foreign and domestic debts of the Philippines: Based on the 2015 Annual Budget Debt Burden - P399.4 billion Domestic Debt Increase per annum resulting from budget deficit- P700.8 billion (That if the government can stabilize the budget deficit of 2% out of the total GDP. Foreign Debt Service- $3.09 Billion ( P137.63 Billion)
- 29. (In billion ofpeso) Budget 2015 (Debt Burden)- P399.4 Less: Domestic Debt- P700.8 (This is only the incremental debt per annum) Foreign Debt- P137.63 Total Deficit (P439.03) Where will the government get funds to cover the annual deficit of P439.03 for the debt service? If this will continue after 10 years or so, Philippines will most likely be one of the countries experiencing debt crisis!
Editor's Notes
- #7 High external debts are believed to have harmful effects to the economy. By having a big external debt, the country might focus too much and allot a big part of its budget to the payment of the debt and forget the other aspects of the country that it has to work on. Also, the reputation of a country is also at stake when external debt is looked at and may discourage investments to enter into the country. High external debt also tends to precipitate crises - if, at some point, investors lose faith in the Philippines' ability to service its external debt or its ability to roll the debt over, they would be expected to pull capital out of the country. That would lead to a decline in the Peso, making the debt burden (which is largely denominated in dollars) more onerous. This could further undermine the confidence of investors in the Philippines, leading to further capital flight and further Peso declines, creating a self-fulfilling prophecy of eventual default.