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 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.
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
Borrowings
The 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 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)
(In billion of peso)
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!