The Philippine Balance Sheet Approach (BSA) Report: The Country's Net External Liability Position Slashed by More Than Half in Q4 2020

​• External Exposure. The country's net external liability position narrowed to P915 billion in Q4 2020 from P1.9 trillion in Q4 2019. The 53.1 improvement in the country's net debtor position against the rest of the world (ROW) was driven by the surge in the BSP's net foreign claims, the ​​decline in the non-financial corporations' (NFCs) net liabilities to the ROW, and reversal of the other depository corporations' (ODCs) position to net external creditor, albeit the sharp increase in the General Government's (GG) net liabilities with the ROW.

• Key Developments and Cross-sectoral E​xposures of the Domestic Sectors.

o The NFCsrecorded a lower overall net financial liability position of P7.5 trillion in Q4 2020 from P8.1 trillion in Q4 2019. This ensued as the NFC's net liabilities against the ODCs eased by 26.5 percent to P1.6 trillion from P2.2 trillion, as claims on the ODCs rose by 13.7 percent. These claims were mainly in the form of deposits. Meanwhile, the level of NFC's gross liabilities with the ODCs was broadly steady at P6.7 trillion in Q4 2020 as banks continued to be risk averse, limiting the access of NFCs to credit. Similarly, the NFCs' net external liability position contracted to P3.3 trillion in Q4 2020 from P3.6 trillion in Q4 2019. This was mainly on account of the expansion in its holdings of equity and debt securities issued by the ROW and the rise in the NFCs' lending to its related parties abroad.

o The households (HHs)registered a higher net financial asset position of P9.5 trillion in Q4 2020 from P8.1 trillion in Q4 2019, mainly on account of higher net financial claims against the ODCs and OFCs. Deposits with the ODCs accounted for half of the HHs total assets at P7.6 trillion, higher by 9.3 percent compared to its level in 2019. This is in part due to the decrease in household spending brought about by the containment measures implemented by the government to curb the spread of COVID-19. The HHs' assets with the OFCs also expanded by 15.4 percent to P4.4 trillion from P3.8 trillion in Q4 2019. Meanwhile, the sector's loans from the ODCs contracted by about 1 percent year-on-year.

o The ODCs'overall net financial asset position surged by 50.9 percent to reach P2 trillion in Q4 2020 from P1.3 trillion in Q4 2019. The ODCs' financial assets expanded by 9.4 percent, well above the 6.4 percent growth in its liabilities. However, despite this asset expansion, bank lending activities continued to be subdued due to the uncertainty brought about by the pandemic. As of Q4 2020, its loan portfolio shrank by 1.6 percent year-on-year to P11.2 trillion from P11.4 trillion in Q4 2019. Given the uncertain environment, the ODCs placed more funds in the BSP facilities and purchased more government securities (GS). The ODCs' deposits with the BSP, which comprised 13.2 percent of its total assets, increased by 33 percent to reach P2.8 trillion in Q4 2020 from P2.1 trillion last year. Meanwhile, the ODCs' holdings of GS amounted to P3 trillion, which was almost a third of the GG's total outstanding debt security liabilities.

o The Central Bank's (CB)net claims on the ROW grew by 20.5 percent to reach P5.3 trillion in Q4 2020 from P4.4 trillion in Q4 2019 following the robust expansion in the country's gross international reserves (GIR). The CB's external assets surged 20 percent driven by its build-up of deposits to non-residents and accumulation of debt securities issued by the ROW.

o The GG'snet liability position further widened to P5.9 trillion from P4.5 trillion in Q4 2019. The GG's liabilities rose 30.8 percent year-on-year in Q4 2020 (to P10.9 trillion from P8.3 trillion). Its indebtedness to the CB, ODCs, and ROW surged 271.5 percent, 15.5 percent, and 29.2 percent, respectively. This ensued as the government implemented several fiscal relief measures to lessen the negative effect of the pandemic on the vulnerable sectors of the economy and support the country's health care system. The GG's liabilities remain largely funded by domestic sources, which were mainly in the form of debt securities held mostly by financial corporations and ROW.