Philippine Debt Crisis

Presented by:Crysler D. Tumale

External Debt -The portion 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.

Internal debt is the 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.

National Debt-Total outstanding borrowings of a central government comprising of

internal (owing to national creditors) and external (owing to foreign

creditors) debt incurred in financing its expenditure.

A debt crisis deals 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.

Major Risks of Debt Crisis1. 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.

External Debt in Philippines 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.

The Gross Domestic Product (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.

The Gross Domestic Product (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.

Philippines recorded a Government 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.

Generally, Government debt as 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.

Philippines recorded a Government 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.

Government Budget is an 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.

The US Dollar increased 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.

The USDPHP spot exchange 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.

HOW DOES THE PHILIPPINE 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.

Financing the 2015 expenditure 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.

Budget Breakdown

The Aquino administration 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.

Of the P2.606 trillion 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

BorrowingsThe projected deficit for 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.

Good News!

The Philippines continues 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.

Estimated Calculation for Debt Burden for both foreign and domestic debts of the Philippines:

Based on the 2015 Annual BudgetDebt 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)

(In billion of peso)Budget 2015 (Debt Burden)- P399.4Less: Domestic Debt- P700.8 (This is only the incremental debt per annum) Foreign Debt- P137.63Total 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!