Understanding the Philippines’ Financial Situation
The Philippines’ net external liabilities have increased by 7.1 percent, from P3.5 trillion in Q1 2025 to P3.7 trillion in Q2 2025, according to preliminary Balance Sheet Approach (BSA) data. This growth in net liabilities indicates that the domestic economy’s debt to the rest of the world has risen.
What Drives the Increase in Net Liabilities?
The rise in net liabilities is primarily driven by two factors: the increase in non-financial corporations’ external financing and the growth in loans owed by the general government to the rest of the world. Additionally, the central bank’s investments in debt securities issued by non-residents have decreased, contributing to the overall increase in net liabilities.
Non-Financial Corporations’ External Financing
The non-financial corporations’ net debtor position has increased due to higher equity security liabilities to non-residents and other financial corporations. Loans remain the primary funding instrument for this sector, followed by equity securities. The rest of the world and other depository corporations are the major sources of financing for non-financial corporations, accounting for nearly three-fourths of the sector’s total outstanding liabilities.
General Government’s Net Debtor Position
The general government’s net debtor position has also widened, reflecting an increase in government securities held by other depository corporations, non-residents, and other financial corporations. Furthermore, loans owed by the government to non-residents have grown. Government securities remain the sector’s main funding instrument, with 70.1 percent of the general government’s obligations denominated in domestic currency. This partly insulates the sector from exchange-rate fluctuations.
The Importance of the Balance Sheet Approach
The Balance Sheet Approach (BSA) is a financial stability surveillance tool developed by the International Monetary Fund in 2002. It is used to monitor the potential vulnerabilities of economic sectors and their interrelationships. Unlike traditional analysis, which looks at flows over a period, the BSA examines the outstanding value of financial assets and liabilities as of a given point in time.
Conclusion
In conclusion, the Philippines’ net external liabilities have increased due to the rise in non-financial corporations’ external financing and the growth in loans owed by the general government to the rest of the world. The use of the Balance Sheet Approach provides valuable insights into the financial situation of the country, highlighting the importance of monitoring the potential vulnerabilities of economic sectors. By understanding these factors, policymakers and stakeholders can make informed decisions to promote financial stability and sustainable economic growth.
