SOURCES OF GOVERNMENT REVENUE

Fiscal policy of the Philippines

From Wikipedia, the free encyclopedia
Fiscal policy refers to the "measures employed
by governments to stabilize the economy,
specifically by manipulating the levels and
allocations of taxes and government
expenditures. Fiscal measures are frequently
used in tandem with monetary policy to achieve
certain goals."[1] In the Philippines, this is
characterized by continuous and increasing levels
of debt and budget deficits, though there have
been improvements in the last few years. [2]
The Philippine governments main source of
revenue are taxes, with some non-tax
revenue also being collected. To finance fiscal
deficit and debt, the Philippines relies on both
domestic and external sources.
Fiscal policy during the Marcos administration
was primarily focused on indirect tax collection
and on government spending on economic
services and infrastructure development. The first
Aquino administration inherited a large fiscal
deficit from the previous administration, but
managed to reduce fiscal imbalance and improve
tax collection through the introduction of the
1986 Tax Reform Program and the value added
tax. The Ramos administration experienced
budget surpluses due to substantial gains from
the massive sale of government assets and
strong foreign investment iyears and
administrations. The Estrada administration faced
a large fiscal deficit due to the decrease in tax
effort and the repayment of the Ramos
administrations debt to contractors and
suppliers. During the Arroyo administration, the
Expanded Value Added Tax Law was enacted,
national debt-to-GDP ratio peaked, and
underspending on public infrastructure and other
capital expenditures was observed.

A comparative graph of Tax and Non-Tax Revenue

contribution from 2001-2010[4]
The Philippine government generates revenues
mainly through personal and income tax
collection, but a small portion of non-tax revenue
is also collected through fees and licenses,
privatization proceeds and income from other
government operations and state-owned
enterprises.
Tax Revenue[edit]
Tax collections comprise the biggest percentage
of revenue collected. Its biggest contributor is
the Bureau of Internal Revenue (BIR), followed by
the Bureau of Customs (BOC). Tax effort as a
percentage of GDP has averaged at roughly 13%
for the years 2001-2010.[5]
Income Taxes[edit]
Income tax is a tax on a person's income, wages,
profits arising from property, practice of
profession, conduct of trade or business or any
stipulated in the National Internal Revenue Code
of 1997 (NIRC), less any deductions granted.
[6]
Income tax in the Philippines is a progressive
tax, as people with higher incomes pay more than
people with lower incomes. Personal income tax
rates vary as such:[7]
Annual Taxable
Income

Income Tax Rate

Revenues and Funding

A comparative graph of Revenue and Tax Effort

from 2001-2010[3]

Less than 10,000

5%

Over 10,000 but

not over 30,000

500 + 10% of the

excess over 10,000

Over 30,000 but

not over 70,000

2,500 + 15% of the

excess over 30,000

Over 70,000 but

not over 140,000

8,500 + 20% of the

excess over 70,000

Over 140,000 but

not over 250,000

22,500 + 25% of the

excess over 140,000

6. Sales of persons and establishments

earning not more than 1.5 million
annually.
Tariffs and Duties[edit]

Over 250,000 but

not over 500,000

50,000 + 30% of the

excess over 250,000

Over 500,000

125,000 + 32% of the

excess over 500,000

The top rate was 35% until 1997, 34% in 1998,

33% in 1999, and 32% since 2000.[7][8]
In 2008, Republic Act No. 9504 (passed by thenPresident Gloria Macapagal-Arroyo) exempted
minimum wage earners from paying income
taxes.[9]
E-VAT[edit]
The Expanded Value Added Tax (E-VAT), is a form
of sales tax that is imposed on the sale of goods
and services and on the import of goods into the
Philippines. It is a consumption tax (those who
consume more are taxed more) and an indirect
tax, which can be passed on to the buyer. The
current E-VAT rate is 12% of transactions. Some
items which are subject to E-VAT include
petroleum, natural gases, indigenous fuels, coals,
medical services, legal services, electricity, nonbasic commodities, clothing, non-food agricultural
products, domestic travel by air and sea.[10]
The E-VAT has exemptions which include basic
commodities and socially sensitive products.
Exemptible from the E-VAT are:[11]
1. Agricultural and marine products in their
original state (e.g. vegetables, meat, fish,
fruits, eggs and rice), including those
which have undergone preservation
processes (e.g. freezing, drying, salting,
broiling, roasting, smoking or stripping);
2. Educational services rendered by both
public and private educational
institutions;
3. Books, newspapers and magazines;
4. Lease of residential houses not exceeding
10,000 monthly;
5. Sale of low-cost house and lot not
exceeding 2.5 million

Second to the BIR in terms of revenue collection,

the Bureau of Customs (BOC)
imposes tariffs and duties on all items imported
into the Philippines. According to Executive Order
206, returning residents, Overseas Filipino
Workers (OFWs) and former Filipino citizens are
exempted from paying duties and tariffs.[12]
Non-Tax Revenue[edit]
Non-tax revenue makes up a small percentage of
total government revenue (roughly less than
20%), and consists of collections of fees and
licenses, privatization proceeds and income from
other state enterprises.[13]
The Bureau of Treasury[edit]
The Bureau of Treasury (BTr) manages the
finances of the government, by attempting to
maximize revenue collected and minimize
spending. The bulk of non-tax revenues comes
from the BTrs income. Under Executive Order
No.449, the BTr collects revenue by issuing,
servicing and redeeming government securities,
and by controlling the Securities Stabilization
Fund (which increases the liquidity and stabilizes
the value of government securities[14]) through
the purchase and sale of government bills and
bonds.[15]
Privatization[edit]
Privatization in the Philippines occurred in three
waves: The first wave in 1986-1987, the second
during 1990 and the third stage, which is
presently taking place.[16]The governments
Privatization Program is handled by the interagency Privatization Council and the Privatization
and Management Office, a sub-branch of the
Department of Finance.[17]
PAGCOR[edit]
The Philippine Amusement and Gaming
Corporation (PAGCOR) is a government-owned
corporation established in 1977 to stop illegal
casino operations. PAGCOR is mandated to
regulate and license gambling (particularly in
casinos), generate revenues for the Philippine
government through its own casinos and promote
tourism in the country.[18]
Spending, Debt, and Financing[edit]

World Bank (WB) and Australian Agency for

International Development (AusAid)."[20]

A comparative graph of National Revenues and

Expenditures from 2001-2010[5]

Microfinance management in the Philippines is

improving substantially. In 2009, the Economist
Intelligence Unit "recognized the Philippines as
the best in the world in terms of its microfinance
regulatory framework." The DOF-National Credit
Council (DOF-NCC) focused on improving the
state of local cooperatives by developing a
supervision and examination manual, launching
advocacies for these cooperatives, and pushing
for the Philippine Cooperative Code of 2008. A
standardized national strategy for microinsurance
and the provisions of grants and technical
assistance were formulated.[20]
Financing and Debt[edit]
Aside from Tax and Non-Tax Revenues, the
government makes use of other sources of
financing to support its expenses. In 2010, the
government borrowed a total net of 351.646
billion for financing:[21]
Domesti
c
Sources

External
Sources

Gross Financing

489.844
billion

257.357
billion

Less:
Repayments/Amortiz
ation

271.246
billion

124.309
billion

Net Financing

218.598
billion

133.048
billion

A comparative graph of Domestic and External

Sources of Financing from 2001-2010[5]

A comparative graph of Total National Debt from

2001-2010[19]
Government Spending and Fiscal
Imbalance[edit]
In 2010, the Philippine Government spent a total
of 1.5 trillion and earned a total of 1.2 trillion
from tax and non-tax revenues, thus resulting to
a total deficit of 314.5 billion.[5]
Despite the national deficit of the Philippines,
the Department of Financereported an average of
29.6 billion in Local Government Unit (LGU)
surplus, which is mostly due to an improved LGU
financial monitoring system which the
government implemented in the recent years.
Efforts of the monitoring system include "debt
monitoring and creditworthiness monitoring
system, effective mobilization of second
generation funds (SGF) to promote LGU
development, and the implementation of a Land
Administration and Management Project (LAMP2)
which received a 'very good' rating from the

Total Financing

351.64
6 billion

External Sources of Financing are:[21]

1. Program and Project Loans - the
government offers project loans to
external bodies and uses the proceeds to
fund domestic projects like infrastructure,
agriculture, and other government
projects.[20]
2. Credit Facility Loans
3. Zero-coupon Treasury Bills

4. Global Bonds
5. Foreign Currencies
Domestic Sources of Financing are[21]
1. Treasury Bonds
2. Facility loans
3. Treasury Bills
4. Bond Exchanges
5. Promissory Notes
6. Term Deposits
In 2010, the total outstanding debt of the
Philippines reached 4.718 trillion: 2.718 trillion
from outstanding domestic sources and 2 trillion
from foreign sources. According to the
Department of Finance, the country has recently
reduced dependency on external sources to
minimize the risks caused by changes in the
global exchange rates. Efforts to reduce national
debt include increasing tax efforts and decreasing
government spending. The Philippine government
has also entered talks with other economic
entities, like the ASEAN Finance Ministers Meeting
(AFMM), ASEAN+3 Finance Ministers Meeting
(AFMM+3), Asia-Pacific Economic Cooperation
(APEC), and ASEAN Single-Window Technical
Working Group (ASW-TWG), in order to strengthen
the countries' and the region's debt management
efforts*.[20]
History of Philippine financial mangement[edit]
Marcos Administration (1981-1985)[edit]
The tax system under the Marcos administration
was generally regressive as it was heavily
dependent on indirect taxes. Indirect taxes and
international trade taxes accounted for about
35% of total tax revenue, while direct taxes only
accounted for 25%. Government expenditure for
economic services peaked during this period,
focusing mainly on infrastructure development,
with about 33% of the budget spent on capital
outlays. In response to the higher global interest
rates and to the depreciation of the peso, the
government became increasingly reliant on
domestic financing to finance fiscal deficit. The
government also started liberalizing tariff policy
during this period by enacting the initial Tariff
Reform Program, which narrowed the tariff
structure from a range of 100%-0% to 50%-10%,
and the Import Liberalization Program, which
aimed at reducing or eliminating tariffs and
realigning indirect taxes.[22][23][24]

Aquino Administration (1986-1992)[edit]

Faced with problems inherited from the previous
administration, the most important of which
being the large fiscal deficit heightened by the
low tax effort due to a weak tax
system, Aquino enacted the 1986 Tax Reform
Program (TRP). The aim of the TRP was to
simplify the tax system, make revenues more
responsive to economic activity, promote
horizontal equity and promote growth by
correcting existing taxes that impaired business
incentives. One of the major reforms enacted
under the program was the introduction of the
Value Added Tax (VAT), which was set at 10%. The
1986 tax reform program resulted in reduced
fiscal imbalance and higher tax effort in the
succeeding years, peaking in 1997, before the
enactment of the 1997 Comprehensive Tax
Reform Program (CTRP). The share of non-tax
revenues during this period soared due to the
sale of sequestered assets of President Marcos
and his cronies (totalling to about 20 billion), the
initial efforts to deregulate the oil industry and
thrust towards the privatization of state
enterprises. Public debt servicing and interest
payments as a percent of the budget peaked
during this period as government focused on
making up for the debt incurred by the Marcos
administration. Another important reform enacted
during the Aquino administration was the
passage of the 1991 Local Government Code
which enabled fiscal decentralization. This
increased the taxing and spending powers to
local governments in effect increasing local
government resources.[22][24]
Ramos Administration (1993-1998)[edit]
The Ramos administration had budget surpluses
for four of its six years in power. The government
benefited from the massive sale of government
assets (totalling to about 70 billion, the biggest
among the administrations) and continued to
benefit from the 1986 TRP. The administration
invested heavily on the power sector as the
country was beset by power outages. The
government utilized its emergency powers to
fast-track the construction of power projects and
established contracts with independent power
plants. This period also experienced a real estate
boom and strong foreign direct investment to the
country during the early years of the
administration, in effect overvaluing the peso.
However, with the onset of the Asian financial
crisis, the peso depreciated by almost 40%. The
Ramos administration relied heavily on external
borrowing to finance its fiscal deficit but quickly
switched to domestic dependence on the onset of
the Asian financial crisis. The administration has
been accused of resorting to budget trickery
during the crisis: balancing assets through the
sales of assets, building up accounts payable and

delaying payment of government premium to

social security holders. In 1997, the
Comprehensive Tax Reform Program (CTRP) was
enacted. Republic Act (RA) 8184 and RA 8240,
which were implemented under the program,
were estimated to yield additional taxes of
around 7.4 billion; however, a decline in tax
effort during the succeeding periods was
observed after the CTRP was implemented. This
was attributed to the unfavorable economic
climate created by the Asian fiscal crisis and the
poor implementation of the provisions of the
reform. A sharp decrease in international trade
tax contribution to GDP was also observed as a
consequence of the trade liberalization and
globalization efforts in the 1990s, more
prominently, the establishment of the ASEAN Free
Trade Agreement (AFTA) and membership to
theWorld Trade Organization (WTO) and the AsiaPacific Economic Cooperation (APEC). The Ramos
administration also provided additional incentives
to export-oriented firms, the most prominent
among these being RA 7227 which was
instrumental to the success of the Subic Bay
Freeport Zone.[22][23]
Estrada Administration (1999-2000)[edit]
President Estrada, who assumed office at the
height of the Asian financial crisis, faced a large
fiscal deficit, which was mainly attributed to the
sharp deterioration in the tax effort (as a result of
the 1997 CTRP: increased tax incentives,
narrowing of VAT base and lowering of tariff walls)
and higher interest payments given the sharp
depreciation of the peso during the crisis. The
administration also had to pay P60 billion worth
of accounts payables left unpaid by the Ramos
administration to contractors and suppliers.
Public spending focused on social services, with
spending on basic education reaching its peak. To
finance the fiscal deficit, Estrada created a
balance between domestic and foreign borrowing.
[22][23]

increased from only Ps 9.3 Billion in 2001 to Ps

22.7 Billion by 2009. The cost of medicines was
brought down by as much as 50% as a result of
the Cheaper Medicines Act and the opening of
Botikas ng Bayan and Botikas ng Barangay, while
the ground-breaking conditional cash transfers
(CCT) program was adapted from Latin America
to stimulate positive behaviors among the poor.
As a result, the Arroyo administration contributed
to ever-declining levels in self-rated poverty, from
a high of 68% at the start of the Ramons
administration, to around 50% at the end of the
Arroyo one. Much of the fuel for government
activism came from an expanded value-added
tax (from 10% to 12%) in 2005 (see final reports
of various Cabinet agencies concerned), which
with other fiscal reforms paved the way for
successive sovereign credit rating upgrades by
the time Arroyo stepped down in June 2010.
These fiscal reforms complemented conservative
liquidity management by the Central Bank,
allowing the peso, for the first time ever, to close
even stronger at the end of a presidential term
than at the start.
References[edit]
1.

Jump up^ "Fiscal Policy."Britannica

Academic Edition. n.d.. Web. 19 May
2011 [1]

2.

Jump up^ "Fiscal Rules: The Way

Forward?." Senate Economic Planning
Office. Senate Economic Planning Office;
August 2005. Web. 20 May 2011. [2]

3.

Jump up^ "Revenue and Tax

Effort." Department of Finance
(DOF). Department of Finance; n.d..Web. 7
May 2011. Web. [3]

4.

Jump up^ "National Government

Cash Operation Report." Bureau of the
Treasury Website. Bureau of the Treasury;
n.d.. Web. 16 May 2011. Web. [4]

5.

^ Jump up to:a b c d "Fiscal Update

for Website." Department of Finance
(DoF) Department of Finance; n.d.. Web.
15 May 2011. Web. [5]

6.

Jump up^ "Income Tax." Bureau of

Internal Revenue Website. Bureau of
Internal Revenue; n.d. Web. 10 May 2011.
Web. [6]

7.

^ Jump up to:a b "National Internal

Revenue Code." Bureau of Internal
Revenue Website.Bureau of Internal

Arroyo Administration (2002-2009)[edit]

The Arroyo administration in 2001 inherited a
poor fiscal position that was attributed to
weakening tax effort (still resulting from the 1997
CTRP) and rising debt servicing costs (due to
peso depreciation). Large fiscal deficits and heavy
losses for monitored government corporations
lingered from 2001-2004 as her caretaker
administration struggled to reverse downward
trends. Following her election in 2004, the
national debt-to-GDP ratio reached a high of 79%
in that year, before dropping every year
thereafter to 57.5% by 2009, her last full year in
office. Lesser roads and bridges and other
infrastructure were built during the Arroyo
administration compare to the previous three
administrations. Educational spending likewise

Revenue; n.d. Web. 10 May 2011.

Web. [7]
8.

Jump up^ FDI and Corporate

Taxation: The Philippine Experience,
Rafaelita M. Aldaba, Philippine Institute
for Development Studies.

9.

Jump up^ "RA 9504." Bureau of

Internal Revenue Website. Bureau of
Internal Revenue; n.d. Web. 20 May 2011.
Web.[8]

10.

11.

Jump up^ "Impact of RA9337

(RVAT) Actual." Department of Finance
(DoF). Department of Finance; n.d.. Web.
10 May 2011. Web. [9]
Jump up^ "Briefer on the VAT
Reform Law." VAT Reform
Website. Department of Finance; n.d..
Web. 7 May 2011. Web [10]

12.

Jump up^ "Frequently Asked

Questions." Bureau of Customs. Bureau of
Customs; n.d.. Web. 15 May 2011.
Web. [11]

13.

Jump up^ "National Government

Fiscal Position." Department of Finance
(DoF)." Department of Finance; n.d.. Web.
15 May 2011. Web. [12]

14.

Jump up^ "The New Central Bank

Act (RA 7653)." Bangko Sentral ng
Pilipinas. Bangko Sentral ng Pilipinas; n.d..
Web. 20 May 2011. Web. [13]

15.

Jump up^ "Mandate." Bureau of

the Treasury Website. Bureau of the
Treasury; n.d.. Web. 16 May 2011.
Web. [14]

16.

Jump up^ Ortile, Lauro.

"Privatization of the Philippines." Asian
Development Bank. Asian Development
Bank; n.d.. Web. 10 May 2011. Web. [15]

17.

Jump up^ "The Philippine

Privatization Program." Department of
Finance (DoF)." Department of Finance;
n.d.. Web. 15 May 2011. Web. [16]

18.

Jump up^ "About

PAGCOR." PACGOR. PAGCOR; n.d.. Web.
15 May 2011. Web

19.

Jump up^ "National Government

Outstanding Debt." Bureau of the

Treasury Website.Bureau of the Treasury;

n.d.. Web. 16 May 2011. Web. [17]
20.

^ Jump up to:a b c d "DoF: Bulwark

of Strength and Stability: 2009 Annual
Report."Department of Finance (DoF)."
Department of Finance; n.d.. Web. 15
May 2011. Web. [18]

21.

^ Jump up to:a b c "National

Government Financing." Bureau of the
Treasury Website. Bureau of the Treasury;
n.d.. Web. 16 May 2011. Web. [19]

22.

^ Jump up to:a b c d Diokno,

Benjamin. "The Philippines: Fiscal
Behavior in Recent History."UP School of
Economics Discussion Papers. University
of the Philippines; June 2008. Web. 17
May 2011. Web. [20]

23.

^ Jump up to:a b c Tuao,

Randy. International Center for
Innovation, Transformation and
Excellence in Governance. Powers of the
President Paper Series. N.p., 7 July 2010.
Web. 7 May 2011. Web.

24.

^ Jump up to:a b Paderanga,

Cayetano. "Recent Fiscal Development in
the Philippines." UP School of Economics
Discussion Papers. University of the
Philippines; October 2001. Web. 17 May
2011. Web. [21]

Patterns of Philippine Expenditure

1. 1. Patterns of Philippine Expenditure
2. 2. xpenditure system is the governments
fiscal arm in producing, allocating and
distributing social goods and services. E
3. 3. The Developmental Problems of
Developing Countries Extreme class
disparity Low capital formation and
investments Inadequacy of revenue
4. 4. Philippine Expenditure Policies
Redistribution of income and wealth and
balanced development. Economic
development. Stability Countryside
development
5. 5. Classification of Philippine Public
Expenditures Level of Government
National Government Local Government
Nature of Expense Current Operating
Expenditures Capital Expenditures
6. 6. Classification of Philippine Public
Expenditures Functional Categories
Economic Development / Services Social
Development/ Services Defense
General Public Services Debt Services

Type of Funds General Fund Special

Fund Bond Fund
7. 7. Patterns of Governmental Expenditure
According to Percent Growth and Percent
of Gross Domestic Product (GDP) 0 5 10 15
20 25 30 35 2001 2002 2003 2004 2005
2006 2007 2008 2009 2010 2011 % of
GDP (%) Percent Growth (%)
8. 8. Expenditure Patterns According to
Nature of Expenses 0 200,000,000
400,000,000 600,000,000 800,000,000
1,000,000,000 1,200,000,000
1,400,000,000 1,600,000,000 Current
Operating Expenditures (MOOE, PS)
Capital Outlays 2010 (Actual) 2011
(Adjusted) 2012 (Proposed)
9. 9. Expenditure Patterns of the National
Government According to Function 0
100,000 200,000 300,000 400,000
500,000 600,000 700,000 2010 2011
2012 (Proposed) Economic Services Social
Services Defense General Public Services
Debt Services
10. 10. Conclusions There is a constant
increase in public expenditures caused by
continuous expansion and improvement of
governments function and services.
Urbanization, growing population and
changing economic needs of the people
incur more expenses in the government.
The distribution of public expending in
different sectors reflects the priorities of
every administration. Different reduction
measures such as streamlining of the
bureaucracy are implemented to reduce
the budget deficit. However, the number
of employees continued to grow since the
governments function is expanding.
11. 11. Recommendations Unnecessary
spending should be eliminated so that
funds will be diverted to more important
services. Vigilant implementation of
existing fiscal policies that will result in the
elimination of corrupt practices in the
government. Strict monitoring of the
spending practices of the different
operating units. This will make sure that
only lawful and important purchases and
disbursements are done.
12. 12. An Evaluation of Income and
Expenditure of the Government for the
Year 1997 2011
13. 13. -400,000 -200,000 0 200,000 400,000
600,000 800,000 1,000,000 1,200,000
1,400,000 1,600,000 1997 1998 1999
2000 2001 2002 2003 2004 2005 2006
2007 2008 2009 2010 2011 Total Income
Total Expenditures Surplus (Deficit)
14. 14. Fidel V. Ramos (1992 1997)
15. 15. Fidel V. Ramos (1992 1997) Budget
surpluses are experienced due to

substantial gains from massive sale of

government assets and strong foreign
investments
16. 16. Joseph Ejercito Estrada (1998 2000)
17. 17. Joseph Ejercito Estrada (1998 2000)
Increasing financial deficits occur during
the Estrada administration due to
decrease in tax effort and repayment of
the Ramos administrations debt to
contractors and suppliers
18. 18. Gloria Macapagal Arroyo (2001
2009)
19. 19. Gloria Macapagal Arroyo (2001
2009) Income and expenditure are both
increasing and there are still large fiscal
deficits. This occurrence is attributed to
weakening of tax effort and rising of debt
services due to peso depreciation.
20. 20. Benigno S. Aquino III (2010 2011)
21. 21. Benigno S. Aquino III (2010 2011)
There is a significant decrease on the
deficit since there is a strengthening
campaign on tax collection. Fiscal
discipline to state owned firms and anticorruption campaign during Aquinos
administration could be credited.
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 $70(US$70
billion). External debt was aprox. 70 billion in
early 2016.
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 $163,934,972,678.
Public debt was $163,934,972,678 in early 2016.
Public debt per person: $1,515.28
Population: 109,805,464
Public debt as % GDP: 45.8%
Total annual debt change: 8.4%
Debt process[edit]
Developing countries use external borrowing as a
mechanism to address the gap between domestic
savings and desired investment and the exportimport 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.[1]
Institutional creditors[edit]
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.[2]
The International Monetary Fund (IMF)[edit]
Since its establishment in 1947, the IMF has been
the primary institution responsible for the
maintenance of a smoothly operating
international monetary system.[3]
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 Funds 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.[4]
International Bank for Reconstruction and
Development (IBRD)[edit]
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,
IBRDs financing not only supplies borrowing
countries with needed financing, but also serves
as a vehicle for global knowledge transfer and
technical assistance.[5]
The Bank Procedures, according to the World
Bank Operations Manual,[6] 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[edit]
Public Debt[7][edit]
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
1. National Government Debt, which includes
both outstanding debt and guaranteed
debt of domestic and external origin; and
2. 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[edit]
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.[8] 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 from where
it is coming from.[9]
Since 1999, the Philippines fluctuates between
deficit and surplus. What is most ideal 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 89 Million Dollars.[10] This was followed
by a growth of surplus in the years 2009 (5.3
Billion dollars)[11] and 2010 (14.4 Billion Dollars).
[12]
In 2014, the country experienced its first
deficit in years, with a 2.9 Billion Dollars deficit. [13]
External debt ratios[edit]
Debt-to-GDP ratio[edit]
The Debt-to-GDP ratio is the proportion of a
countrys Federal debt in relation to its total
output or GDP.[14] 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 fluctuates until
2004 where 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.[15] Up until
last year, the trend is 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[edit]
The debt-to-revenue, according to the NTRC, is an
important calculation in evaluating the
governments 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.[16]
From almost a steady ratio of 420% in 2000-2001,
the countrys debt-to-revenue ratio went down to
364% and 354% in 2011 and 2012, respectively.
However, ratio started to soar as high as 539% in
2004. Between 2005-2007, the ratio slipped to as
low as 327% then rose again to 391% in 2010.[17]
Debt service ratio[edit]
Republic Act 6142 of 1970 defined the debtservice ratio as the proportion of the Philippines

principal and interest payments on medium- and

long-term debt to total external receipts or export
earnings.[18] For the past 15 years, the Philippines
debt service burden (DSB) to exports on goods
and receipts from services and income noticeably
fell over half from 14.6% in 1999 to 6.2% in 2014.
From 2001 to 2009, the figures have been
fluctuating. However, the ratios for 2009 until
2014 maintained a trend of decline. This is
preferred since low debt service ratio
characterize better international finances.
Assessment of government performances on
external debt[edit]
Ferdinand Marcos (Dec 1965 Feb 1986)
[edit]
See also: Ferdinand Marcos
During the years 1966 to 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.
[19]
Hence, just over a third of today's $77 billion
external debt was contributed by the 20-year rule
of the Marcos government. 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).[20][21]
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 countrys
external debt; this then was a limitation on debt
service and on total external indebtedness.[22] The
Foreign Currency Deposit System (FCDS), on the
other hand, was in charge of permitting the
external borrowing of banking sectorboth
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 277.7 million dollars to 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 was also characterized by strong
economic performance with the rise of exports
and booming of investment, alongside the rise of
capital flight andcrony 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.[23]
Under Marcos, the Philippines saw its external
debt balloon from $360 million (U.S.) in 1962 to
$26.2 billion (U.S.) in 1986.[24][25] Much of this debt
was for the government to finance economic
development projects, which had to rely on
borrowing from international lenderssuch as
theIMFThus, the characterization of Marcos
administration as being "Debt-driven". A prime
example of a project to be funded through loans
is the Bataan Nuclear power plant, which until
this day has not been used.
By 1983, the Philippines had racked up a debt of
US$24.4 billion and was unable to meet its
payment obligations to the IMF and World Bank.
The Philippines had subsequently had to agree to
IMF and World Bank conditions to be granted
another loan, which had led to the
extreme[clarification needed] devaluation of the Philippine
peso.[26]
In 1982, the Philippines turned to the IMF once
again due to BOP difficulties and increase in
outstanding oil import credit (85%). During 1983,
the debt-to-GDP ratio grew to 56% (compared to
35% during 1980) as well as the debt service
ratio with 38% (versus 21% during 1980).[23] The
government also called for emergency loans from
the World Bank and transaction commercial
banks. By December 1984, the country chose to
abide by the IMF conditions (such as those on the
peso, etc.) to receive additional funds. BOP
targets were met in 1985 as the current account
turned positive.[27]
Corazon Aquino (February 1986 June 1992)
[edit]
See also: Corazon Aquino
Corazon (Cory) Aquino started her administration
with a total debt of about $60.2 billion. Domestic
debt was about $32.06 billion, while external debt
totaled to around $28.2 billion.[28] 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 countrys situation and
initially refused to any renegotiation. On the other
hand, Jaime Ongpin, the finance secretary, Mr.
Fernandez, 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.
[29]
Later, USA made the "Marshall plan" to help
the country. The proposal would expand private
sector investment, enhance trade opportunities,
and seek solutions for Philippines external
debt[30] (Business World, 2005). 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.[31]
The National Economic and Development
Authority (NEDA) recommended a two-year
moratorium on debt servicing as well repudiation
on "fraudulent" loans. Business-oriented groups
and cabinet member objected to this and
ultimately, Aquino and the BSP resisted
moratorium, opting to maintain a cooperative
approach with its creditors.[27][32]
Through the IMF and commercial banks
agreements, the Philippines was allowed to enter
the Brady Plan, a "3-pronged program" which
allowed the government to use funds to
repurchase $1.31 billion at a 50% discount, to
reschedule of its debt due (from 1990 to 1994)
and for 80 banks to subscribe to $700 million
worth of new loans.[27] A multinational initiative
(19891991) called the Philippine Assistance Plan
(or Multi Aid Initiative) agreed to provide a total of
$6.7 billion assistance to the country.[32]
Ultimately, the Aquino administration negotiated
with various creditor groups to lower interest
rates, reschedule the countrys debt, and reduce
total debt size itself.[27]"The Aquino administration
appeared to be unable to work with the Congress
to enact an economic package to overcome the
country's economic difficulties.".[32]Moreover,
although debt service payments only underwent
slight changes (with BoP pressures still existent),
overall growth caused the debt-to-GDP ratio to
fall as well as the debt service-to-exports ratio. [27]
Fidel V. Ramos (June 1992 June 1998)[edit]
See also: Fidel V. Ramos
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."[33] 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%.[34]
Fidel V. Ramos 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).[28] In the start of
Ramos regime, he envisioned the Philippines to
be a part of Asias 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
Aquinos regime) to 7.3%.[35] 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. [citation
needed]

Ramos tried to control debt through debt

restructuring and fiscal management. Ramos
claims to have brought down the debt service
ratio from 40% of export earning to around 20%.
The debt service ratio was reduced in his regime
as well. Reduction in debt servicing, however,
partially caused the economys decline since
funds were not used for the countrys
development/growth.[35]
Under his administration, the Republic Act 7653,
more commonly known as the New Central Bank
Act, was enacted on June 14, 1993. It took effect
on July 3 of the same year.[36] This act serves as
the governing body of the Bangko Sentral ng
Pilipinas (BSP) and its responsibilities,
governance, and operations. President Ramos
had also boosted foreign trade and investments
that increased capital flow into the country. With
the reestablishment of the access to debt market,
issuance ofgovernment bonds in foreign
currencies was able to finance the recovery of the
country,[37] until the Asian financial crisis of 1997.
In the external sector, the volatility of peso-dollar
exchange rates had caused the widening of debt
spreads.[38] However, through reforms on debt
service payments and reasonable fiscal policy,
this accumulated external debt was reduced to
more controllable levels. Foreign exchange
control was also implemented by reducing the
supply of foreign exchange, while increasing the
demand.[39]
Joseph Ejercito Estrada (June 1998 Jan
2001)[edit]
See also: Joseph Estrada
The Estrada administration was plagued with
political and economic problems. Domestically,
the fight against the MILF in Mindanao and
questionable public governance reduced the trust
of foreign entrepreneurs and investors.
Internationally, the country was greatly affected

by the world oil price hike and the tightened

monetary policy of the United States Federal
Reserve Board.[40]
Under the regime of Estrada, the Philippines has
accumulated an 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 is at a disadvantage, the GDP
growth rate was 3.2 percent from a -0.5 percent
low in 1998. In addition, domestic investment
started to increase from 18.8% of GDP in 1999 to
21.1% of GDP in 2000. Faced with a high foreign
debt even just after he assumed his office,
President Estrada in his first State of the Nation
Address (SONA) said that contractionary policies
will be employed by cutting back on government
expenditures with the help of a budget
framework.[41] At the end of 2000, total external
debt had increased from year 1999 US$51.157
billion to US$51.358 billion. This rise was mainly
due to the overspending of the National
Government which resulted in a Php 136.1 deficit
of cash operations. Also, the weakening of the
Peso against the US Dollars (average of Php
44.19/US$1; record average low of Php
51.68/US$1 on October 31, 2000) resulted from
the rise of US interest rates and greatly affected
the borrowing of both the private and public
sectors.[40]
A factor that hindered the improvement of
Philippines debt position is that the Estrada
administration is the tension between the
government and the Moro Islamic Liberation Front
(MILF). Even though the Ramos administration
had put effort to instill peace in Mindanao
through agreement, they were not able to agree
with the Estrada administration. Thus, this
resulted to various terrorist attacks with the
Philippine military and the civilians still. Some of
those attacks are 277 violations committed,
kidnapping a foreign priest, namely Father
Luciano Benedetti, the occupying and setting on
fire of the municipal hall of Talayan,
Maguindanao; and the takeover of the Narciso
Ramos Highway.[42] By doing so, they inflicted
severe damage on the country's image abroad,
and scared the much-needed foreign investments
away. Because of this, on March 21, 2000,
President Joseph Ejercito Estrada declared an "allout-war" against the MILF. After months of
conflict, on July 10 of the same year, the
President went to Minadanao and raised the
Philippine flag symbolizing victory. After the war
the President said, "... will speed up government
efforts to bring genuine and lasting peace and
development in Mindanao". In the middle of July
the president ordered the military to arrest top
MILF leaders.
Unfortunately, to makes matters worse, the
Estrada administration was criticized for

incompetence and corruption. Estrada was

accused of illegal gambling through the
Juetenggate operation. Estrada was able to
receive Php400 million as payoff from illegal
gambling profits. This further destroys the image
of the current administration and lost the trust of
the Philippine public. Foreign investors were now
discouraged to invest in the Philippines. Also, in
the second year of his administration, when
Estrada was accused of influencing an
investigation in the stock market manipulation,
foreign investments further declined. With the
Asian Financial Crisis and climatic disturbances,
the performance of the Philippine economy just
got only worse.Toward the end of Estrada's
administration, the fiscal deficit had doubled to
more than P100 billion from a low of P49 billion in
1998. In January 2001, Estrada was finally
removed from office by a second peaceful
"People Power" revolution led by the Filipino
youth, NGOs, and the business sector. By the
near end of his term, the total external debt has
increased from year 1999 US$51.157 billion to
US$51.358 billion. President Estrada was the first
Philippine president to be impeached by
Congress, and his vice-president, Gloria
Macapagal-Arroyo, became the fourteenth
President of the Republic.
Gloria Macapagal-Arroyo (Jan 2001 June
2010)[edit]
See also: Gloria Macapagal-Arroyo
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.[43] 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.[44]
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.[45] 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.[46] This eventually led to a state
of fiscal crisis due to the huge amount of the
deficit,[45] 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.[47]
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.[48] 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 valueadded tax.[48]
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.
[49]
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.[50]
Following the fiscal crisis, the external sector
policy for 20052006 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.[51] Moreover, less borrowings, improved
pre-payment schemes, lower foreign exchange

rate and increased government revenue[45] 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.[52]
Benigno "Noynoy" Aquino III (Jun 2010 Jun
2016)[edit]
See also: Benigno Aquino III
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.[53]
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.[54]
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.[53]
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%.[55]
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-GDPratio 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.
[56]
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.[57]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%.[56]
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.[58]
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 end2014. This decline was due to the net repayments
(US$2.0 billion) mainly by banks.[59]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.

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).[66]

[60]

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 end2014 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).[61]
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 countrys
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.[62]

Risks of external debt to Philippine economy[edit]

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.[67]
Appendix[edit]
External Debt For Selected Years[edit]

Fisc
al
Year

Total
External
Debt in

Total
Debt
Service
in

Million
of US
Dollars
($)[68]

Million
of US
Dollars
($)[68]

External
Debt to
GDP
Ratio

Debt
Servic
e
Ratio

(%)[68]

(%)[68]

1999 51 157

6 583

61.6

14.6

2000 51 358

6 268

63.4

13.0

Philippine Debt Sustainability[edit]

2001 52 047

6 536

68.2

15.7

According to NTRC, the countrys debt

sustainability assessment for 2012-2017 shows
that investors have a positive outlook on the
countrys economy.[63]

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

It is said that a high debt level could be perceived

as sustainable by investors if it is decreasing.
[64]
The countrys 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 the years 2012-2017, the
country must use around PhP42 to PhP55 for debt
repayment.[65]

2014 77 674

6.2

2012

Surplus

9.2 billion

National government external debt and

debt service for selected years[edit]

2013

Surplus

5.1 billion

2014

Deficit

2.9 billion

Fiscal
year

6 318

27.3

Total NG
external debt

Total NG
external debt
service

in million of
pesos (PhP) [7]

in million of
pesos (PhP)[7]

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[edit]

Fiscal
year

Deficit or
surplus[69]

Total amount of
BOP

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