Philippines’ net external liability position increased by 14.5 percent quarter-on-quarter to P2.3 trillion as of end-March this year from P2 trillion in end-December due to the government’s higher net indebtedness, based on central bank data.

The Bangko Sentral ng Pilipinas (BSP) in a report said that besides the higher net external liability position of the general government, the lower net external asset position of the other depository corporations (ODCs) contributed to the higher external exposures.

The report is based on the latest Balance Sheet Approach (BSA) statistics of the BSP which indicated that by sector, the general government as of end-March is the largest net debtor in the country

The BSP said the government’s net financial liability position widened by 3.8 percent quarter-on-quarter to P8.5 trillion in the first quarter versus P8.2 trillion the last quarter of 2022 because of its “higher net indebtedness to the rest of the world, the other depository corporations, and the other financial corporations (OFCs).”

It further noted that the government’s net debtor position to the rest of the world increased due the following: higher net issuances of government securities; and higher net availment of loans from the rest of the world.

As for the government’s net debtor position to ODCs and OFCs, this grew due to the increased net issuances of government securities to these counterparty sectors, said the BSP.

The report also noted that during the period, since most of the external exposures are in peso currency, the “general government remained partly insulated from exchange rate fluctuations” as majority of its liabilities were peso-denominated.

The government’s liabilities-to-gross domestic product (GDP) ratio increased to 63.3 percent in the first quarter this year after borrowings outpaced the growth of the economy in nominal terms.

On a year-on-year basis, the government’s net financial liability position expanded as the rest of the world, OFCs, and ODCs increased their government security holdings.

Meanwhile, the non-financial corporations’ (NFCs) net financial liability position dipped by 0.3 percent quarter-on-quarter to P8.45 trillion from P8.48 trillion in the previous quarter because of the lower net debt against the rest of the world and the ODCs.

The BSP said NFCs’ net external debtor position decreased due to the rest of the world’s lower investments in NFC-issued equity and investment fund shares.

“Similarly, the sector’s net debt to the other depository corporations decreased driven mainly by the decline in its outstanding loans owed to the other depository corporations,” said the BSP.

NFCs’ liabilities-to-GDP ratio dropped to 87.5 percent amid the decline in the non-financial corporations’ liabilities.

On a year-on-year basis, the OFCs’ net liability position “widened due to the rise in the net availment of bank loans to sustain their operations amid the continued improvement in the customers’ economic prospects,” said the BSP.

The households continued to be the top net creditor of the economy as its net financial asset position increased by 2.8 percent quarter-on-quarter to P12.2 trillion as of end-March versus P11.9 trillion in the last quarter of 2022.

“This resulted from the increase in the households’ investments in other financial corporations-issued equity and investment fund shares,” said the BSP.

Amid the steady increase in the households’ gross financial assets, the sector’s gross financial liabilities grew year-on-year by 11.2 percent – the highest recorded since the onset of the pandemic. “This coincided with the steeper increase in the prices of goods and services as headline inflation accelerated to 8.3 percent in Q1 2023,” said the BSP.

The other depository corporations’ net creditor position declined by 8.4 percent quarter-on-quarter to P1.7 trillion from P1.9 trillion in the previous quarter. “Both the value of the external assets (i.e., deposits abroad and loans to non-residents) and the domestic assets (i.e., deposit placements with the central bank) of the other depository corporations decreased quarter-on-quarter,” said the BSP.

The report noted that the ODCs’ net debtor position to the OFCs widened as deposits in banks and holdings of other depository corporations-issued equity securities increased. On an annual basis, the other depository corporations’ net asset position contracted, driven mainly by the higher deposits from the households and the other financial corporations.

Meanwhile, the central bank’s own net creditor position declined by 2.6 percent quarter-on-quarter to P789.7 billion end-March from P811.1 billion in the last quarter of 2022 due to the government’s deposits which increased because of the higher proceeds from its issuances of government securities in the first quarter.

NFCs are private and public institutional units engaged in the production of market goods and non-financial services while ODCs are banks and non-banks with quasi-banking functions, non-stock savings and loan associations, money market funds and offshore banking units.

The BSA, developed by the International Monetary Fund, is a financial stability monitoring tool that covers the National Government, households, production-based institutions, all banks and non-banks, insurance firms, money-market companies and the BSP itself. It is a presentation of the country’s sectoral accounts on a from whom-to-whom basis.